In the right hands, credit cards can be an incredible tool. But if you don’t use them responsibly you may end up causing a lot of damage.
The simple thing to do is to pay your bills in full and on time every month. However, that’s easier said than done. Some of us make mistakes – intentional or unintentional – that can sometimes cause our debt to spiral out of control.
Here are some credit mistakes to avoid:
Making minimum payments – If you’re making just the required minimum payments every month, it might take you years to pay off your balance. Seriously, why would you pay 19.99% or more in annual interest costs?
To be fair, this mistake happens to many people, but if you want to clear your debts you need to make some sacrifices. Start cutting your expenses any way you can and apply that savings towards your credit card debt.
Using cash advances – There’s absolutely no reason why you should use a credit card cash advance since the fees associated with them are incredibly high. Not only is the interest rate on cash advances usually higher than purchase interest, they often come with an additional fee based on how much you withdraw.
The only time when a credit card cash advance makes sense is when your only other alternative is a payday loan. However, if you ever get to that point, you probably have much bigger issues to deal with and you may want to seek professional help.
Balance protection insurance – At face value, balance protection insurance sounds pretty good. For a small fee, your provider will pay a benefit to your credit card should you die, suffer a dismemberment, be diagnosed with a critical illness, or become disabled and are unable to pay your balance on your own. However, when you read the fine print you’ll realize this protection is expensive and not very good.
The problem is with the fee itself. It’s based on your current balance so it’s essentially a “tax” you’ve volunteered to pay. If you’re using credit responsibly and have an emergency fund, then you should never be in a position where a life event affects your ability to pay your bills.
Overspending – In the end, overspending is the main reason why our credit card debt can get out of control. We’re all aware that payments need to be made eventually, but it’s so easy to charge things to plastic since we don’t physically see any money leaving our wallets.
It’s not just the big-ticket items that can make you overspend. Making multiple small purchases add up over time and they may give you buyer’s remorse when it comes time to pay your bills. If you’re frustrated with your spending habits, consider switching to a cash-only budget.
With all these potential costly mistakes, you would think everyone would avoid credit, but using credit has become part of our daily lives. We can’t all make purchases in cash and using credit responsibly is the best way to build a good credit history. If you’re applying for your first credit card, or looking for a better card, be sure to compare rewards credit cards to find the perfect card for you.