Credit cards can definitely make modern life easier. However, you can also get into trouble with them rather quickly if you make these common credit card mistakes.
Carrying a Balance from Month-to-Month
Every financial expert you’ll ever meet will tell you the smartest way to use a credit card is to pay off your balance each month. This means being careful to charge only what you can afford to pay off before the grace period ends and interest is applied to the amount owed.
While it has yet to be confirmed, Albert Einstein is reputed to have said that compound interest is the most powerful force in the universe. Regardless of the origin of the statement, the premise is sound. When you carry a credit card balance from month to month you wind up paying interest on interest, which makes the amount you owe greater each month. And, the longer this goes on, the more you’ll owe.
Making Minimum Monthly Payments
Going hand in hand with the scenario above, minimum payments look enticing when you see them on the bill, but they are designed to keep you in debt for as long as legally possible.
The longer you stay in debt, the more interest you’ll pay.
Typically covering only one to three percent of the outstanding balance, making minimum payments can extend the life of a $1,000 loan to a decade or more and double the amount you’ll pay the card issuer. This, of course is assuming you add no more charges to the balance. However, most people continue using their cards, stacking debt on top of debt and interest on top of interest.
If allowed to reach its ultimate conclusion — maxing out the card — you’ll also incur over the limit fees, which can also trigger rate increases. Further, your credit rating will suffer. One of the factors establishing your credit score is the amount of your available credit currently in use.
A maxed out card will compromise your credit score.
Considering Cards Added Spending Power
Too many people consider credit cards money in their pockets, rather than money out of their pockets. Studies have shown some consumers willingly pay more when buying with credit cards than paying cash.
Meanwhile, far from being free money, credit cards are the most expensive way to spend. This is especially true when you allow interest charges to be applied to the expenditure.
Credit cards are best thought of in the same manner as fire extinguishers. They should be used only when absolutely necessary. Yes, they will put out fires, but in so doing they will also create a mess with which you’ll have to deal with.
This is why both fire extinguishers and credit cards should always be considered “For Emergency Use Only”.
Ignoring Monthly Statements
With the rise of online banking and automated payments, too many people are paying whatever balance the statement lists. Auditing your bill before transmitting the funds each month could help you catch identity theft, erroneous charges and misapplied fees.
People make mistakes all the time. Computers only do what they are told to do. People also steal. You have to protect yourself against those potential occurrences. Issues will go unaddressed if you pay blindly each month.
These four common credit card mistakes will make for a very expensive experience. In fact, left unchecked, these issues could morph into full-blown credit problems. If you’ve already encountered this and you’re wondering how to fix it, working with a company like Freedom Debt Relief settle your debts and get your finances back on track.