People who use credit cards carefully never end up pilling a huge debt. Credit card debt is very similar to the disease ‘swine flu’. Both of them result in fever, headaches, chills and exhaustion and no one wants to go there. If you don’t use them responsibly, you will find yourself overburdened in debt. It is not very difficult to prevent this from happening. Here are eight credit card mistakes to avoid:
Don’t let marketers tempt you towards a wrong purchase
Marketers try to tempt you with their offers such as reward points or a good sign-up offer. However, you must choose your credit card according to your lifestyle. Check if it could be used at your favorite restaurants and shopping malls and if you have to pay annual fees. The one with lower APR would suit you more.
“Pre-approved” credit cards might tempt people with a history of credit problems. You should know that pre approval does not mean you will get the card for sure. Do proper research and choose the card that suits you the most.
Carefully understand terms and conditions
Don’t get mistaken for elimination of some credit card fees as stated in 2009 CARD Act because it applies only on few of them. Read the terms and conditions carefully so that you know everything before you sign up. Credit card companies sometimes tend to be less transparent so you have to be careful at your end.
Avoid making only the ‘minimum payment’
Among the credit card mistakes to avoid, this is an important one because you have to pay an amount to keep from missing your payment every time. Let’s look at an example. If you have a $1200 balance on your credit card and you just pay your minimum payment of, suppose $42. Your balance will remain same as before, in fact you will have a higher APR. You will end up with the same balance along with $713.79 interest with an APR of 18%. Also, you will be charged a higher rate of interest if you carry previous dues.
Avoid taking cash advances
Among credit card mistakes to avoid, you should avoid taking cash advances from your credit card because once you take it, interest is charged from that very moment. Such transactions charge extra fees and higher interest rates.
Never ignore statements and notices
Credit card companies send you some statements which include “gray” charges. These charges could be membership fees you had cancelled etc. Look for such charges and if you find some, resolve things immediately. Review your statements very carefully to avoid fraud.
Never max out a credit card
Using all your available credit will cost you money and ruin your credit score. It is based on the amount used vs. amount available. This is also called debt-to-credit ratio. Creditors prefer a lower ratio or at max 30% otherwise they increase your interest rate or reduce the credit amount. You should keep an eye the ratio and manage it if it is getting higher.
Make your payments within due date
Credit card companies give you a grace period to make your payments. This is the time between the billing cycle and your due date. Delaying payments will result in lowering your credit score by 60 points and can also raise your interest rate. Always remember and make timely payments to avoid consequences.
Don’t run after points
There are different types of credit cards. Some of them come with points and they look very tempting. Don’t buy items just to increase points. This is a common credit card mistake to avoid! Purchase items only if you need them. If you keep on buying things to complete your points for an attractive offer, you will realize that you are ahead of required points. Majority of people tend to spend more money when using a credit card rather than cash. Well, the credit card companies use this as a marketing strategy to get more money from you, so be careful not to get into their trap. For example they would offer you a plane ticket on 100 points and you would start making unnecessary purchases just to make points.
Using credit cards does not always put you in danger. You don’t have to stop using credit cards because of the danger of accumulating debts, we are just guiding you to make the “right” choices and avoid common unnecessary mistakes. There are plenty of benefits you can enjoy using credit cards such as they protect you from theft, useful for emergencies, make transactions easily etc. All you have to do is keep 1 or 2 cards according to your needs, keep a track of your payments and spend only on important purchases. It’s not even necessary to keep on purchasing all the time to get a good credit score; one or two good purchases a month can do your job. So be careful and enjoy using your credit cards.