Credit cards can be a great way to pay for large purchases or for use during an emergency. They can also be the reason for your financial destruction if you are not careful. Before you rack up your credit card debt, learn the top mistakes people make with them so that you can avoid them.
Not Reading the Fine Print
Credit card offers have a way of making the deal sound amazing. Who doesn’t love 0% interest or low introductory rates? Letting that excitement get in the way of understanding the true terms of the card can be one of the biggest mistakes you make.
Before you know it, your 0% rate expires and you are stuck paying interest from day one all over again. Other fine print consumers often miss are balance transfer fees or the rates on those balance transfers. Sometimes credit cards offer a low introductory rate on one type of charge, such as a balance transfer, but not on purchases. You miss that fine print and your purchases could cost you a lot more than you thought.
Making Only the Minimum Payment
The minimum payment your credit card company requires can seem rather attractive. It might make you think you can afford more than you thought. At only $25 a month, why not charge large purchases, right?
When you only pay the minimum payment, though, you pay a lot more interest on the amount you charged. That interest keeps compounding too. Each month, your balance is higher because of the interest that accumulated during the previous month. When you add the interest to that amount each month moving forward, you have a large balance that you may have trouble paying off before you even realize it.
Not Comparison Shopping
It pays to shop around for the right credit card. How do you know what other rates are out there if you don’t look? If you don’t plan on paying your balance in full each month, you want the credit card with the lowest purchase interest rate.
That’s not all, though. Pay close attention to the fees. Is there an annual fee? What about a balance transfer fee? These fees add up over time. Make sure you look for the card that has the most attractive terms and will cost you the least amount in the end.
Charging Too Much
Your credit card could be a good source of money when you need to make a large purchase, but you should have a plan to pay it off. Ideally, you want to pay the balance in full each month. This gives you the protection making a purchase on a credit card provides without the interest credit cards charge.
If you can’t pay in full, make sure you make large payments whenever possible. This helps get the balance paid off faster. What you don’t want to do, though, is keep racking up that balance. Ideally, your credit card balance should be no more than 30% of the credit limit. If you go beyond 30%, you will likely damage your credit score and limit your chances of getting any new credit moving forward.
Missing Your Due Date
Technically, credit card companies don’t report your late payment unless it’s more than 30 days past due. But paying late can hurt you financially. If you make your payment even one day past the due date, you’ll likely pay a hefty late charge fee. Your minimum required payment will also likely increase for the next cycle or two to make up for the missed payment.
Make sure you pay close attention to not only the due date, but also the time it’s due too. Some companies consider a payment late if it reaches them after 5 PM (in their time zone). Read your credit card agreement carefully so you know the exact cut off for your card.
Closing Your Credit Card
It can be tempting to close your credit card, especially if you worked hard to pay off a large balance, but don’t do it. Instead, lock it up and leave it unused. The available credit will help your credit utilization rate, which helps your credit score. The age of the credit card account will help too. The older your accounts are, the higher your credit score gets in most cases.
Using a credit card can be a good thing if you use it right. Make sure you know all of the details of the account before even accepting the card. If you ever have questions about your account, make sure you ask the provider. Most importantly, if you get in trouble and can’t make your payments, make sure you talk to the credit card company right away rather than ignoring the debt.