Get the most from your credit card by steering clear of these common credit card missteps.
Don’t Make These 7 Credit Card Mistakes
Whether you just received your first credit card or already have a wallet filled with plastic, it pays to know how to use this convenient credit resource to your advantage. Credit card account(s) can help you build credit, improve your credit score and get out of jam when you’re short on cash.
If you’re not careful, however, a credit card can also become a burden that gobbles much of your paycheck, lowers your credit score and sucks enjoyment out of your life while you struggle to pay off a high balance. Fortunately, the most common credit card mistakes are easy to avoid.
Click or swipe to learn how to avoid 7 common credit card mistakes.
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1. Paying late
When you pay after a card’s payment due date, the credit card issuer typically charges a late fee averaging up to $36, according to personal finance site Bankrate. If you’re late only once, it’s worth a shot to call the credit card issuer and ask if it can waive the late fee to avoid paying the fee on top of interest.
2. Making only minimum payments
While paying only the minimum payment amount might seem like a smart money-stretching move, those minimum payment amounts benefit the creditor, not the cardholder, who pays interest each month on the balance.
If you want to know the consequences of making only minimum payments on your credit card, just take a look at your credit card statement. Credit card companies are legally required to disclose how long it will take you to pay off the entire balance when making only minimum payments.
You’ll also find on your statement how much you must pay each month to pay off the balance in three years, including the total amount you will pay in interest.
3. Carrying the week with cash advances
When you’re short on cash and a week shy of payday, it’s tempting to head to the nearest ATM for a cash advance on your credit card. Be careful, though. You’ll typically pay much more than the cash advance amount in fees and interest for that convenience.
The credit card company may charge up to $20 or more in upfront fees when you take a cash advance, according to major credit bureau Experian. On top of that fee, you may pay a fee to the bank where you withdraw money from the ATM. Cash advances also usually have a higher interest rate – sometimes more than 25% – than regular purchases.
4. Maxing cards out
When you get a card with a $5,000 credit limit, staying well under that limit seems easy enough at first. If you’re not careful, however, a few expensive emergencies or repairs can max out a credit card in no time at all.
When that happens, you may no longer have credit available for emergencies or to help you get by until payday. Maxed-out credit cards can also hurt your credit utilization rate – the amount of your debt to available revolving credit – which accounts for around 30% of your credit score.
5. Making purchases simply to earn rewards
If you’re gradually racking up rewards points or miles on a credit card with necessary purchases that you try to pay off each month, that’s great. You may even pay a large bill such as home insurance with the card to earn rewards and then pay off the balance the same month.
However, if you’re making tons of purchases with the card just to earn rewards without keeping the balance low or paid off, you can end up paying way more in interest than you’ll receive in travel miles or cash rewards.
6. Having too much credit card debt
As obvious as this credit card mistake seems, it’s a rare cardholder who hasn’t had to dig out from under a pile of credit card debt at least once. So, don’t be too hard on yourself if you’re in that position. Instead, create a budget to pay off credit card debt and seek credit counseling at a nonprofit credit counseling agency so you don’t fall into that position again.
7. Procrastinating on a balance transfer amount
It can be a smart move to transfer a large balance on a high-interest credit card to another credit card with an intro 0% APR for a year or 18 months. That way, you can avoid paying interest while hammering away at the principal during the intro period, maybe even paying off the full balance.
At the same time, it’s also easy to procrastinate on your payoff goal by making only small payments. Soon enough, though, the end of that intro period arrives – along with a much higher interest rate.
When transferring a balance to a card with an introductory 0% APR, figure out how much you must pay each month to pay off the balance before the promotional period ends. Then stick to your payment plan.
Published by Debt.com, LLC