Credit cards are a great way to make cashless payments, build a credit history and manage your expenses. However, if you aren’t careful, your credit card can quickly turn into a serious financial burden. To prevent that from happening, you will be introduced to five credit card mistakes to avoid in this article.
Credit cards can quickly turn into a financial burden.
1. Making only the minimum monthly repayment
A common mistake that many credit card holders make is to only pay the minimum required monthly repayment to pay off their balance. By only making the minimum monthly repayment, not only will take you a very long time to pay off your credit card debt but you will also incur substantial interest costs. For example, if you have $2,500 credit card debt on a card that charges 20% APR and you only make minimum repayments worth $50 each month, it will take you around nine years to pay off your credit card debt.
2. Making late payments
Worse than only making the minimum repayments each month is missing your credit card payments. Late payments can weaken your credit score, especially when you miss the late payment period and end up defaulting on your credit card debt. It is best to set up a direct debit for the amount you want to pay each month towards reducing your credit card debt to prevent any late payments.
Don't make these common mistakes with your credit card.
3. Picking the wrong type of credit card
Another common mistake credit card holders make is to pick the wrong type of card. If you need to make a large purchase that you know you will be able to pay off within twelve months, then getting a twelve-month 0% APR credit card would be the right option. If, on the other hand, you want to make a balance transfer, then getting a card that charges 0% on balance transfers would be the right option. Make sure you choose the type of credit card that serves the specific purpose you require the card for.
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4. Using your credit card to make cash withdrawal
Another crucial mistake to avoid when using your credit card is to make cash withdrawals, also known as cash advances. Cash advances can cost you up to 4% interest and these interest costs often start accruing the day you make the withdrawal so make sure to never use your credit card to withdraw cash.
5. Spending more than you can actually afford
This is the most obvious mistake you can make. Yet, many people still fall into this trap. Just because a credit card allows you to purchase something you can’t actually afford right now, doesn’t mean you should make that purchase. Always spend within your means.