Avoid These 7 Common Credit Card Mistakes to Save Money
Credit cards enable consumers to make big purchases that they would not otherwise be able to afford, offer convenience by reducing the need to carry cash, have electronic records that make it easy to track spending and identify fraud and can be a simple solution in case of an emergency. Credit cards have also gained acceptability since they allow users to build their credit history when used responsibly, with most of the cards offering reward programs that accrue to great benefits.
While managing your credit can seem like a lot of work, it is very critical as it impacts many aspects of your life. If users are not careful with how they use these little plastic cards, their actions may affect whether they get a job, security clearance, or secure an apartment. Before we explore common credit card mistakes to avoid, let’s look at responsible credit card usage.
Responsible Credit Card Usage
While a good number of consumers know that they can use credit cards to buy something, very few understand how they work. Most people get a bill at the end of every month and pay it off without realizing what impact using a credit card has on their lives. This results in many people making costly credit card mistakes.
Credit cards in their most basic form are loans from banks. These little plastic cards have the user’s name and credit card number on them. They also feature a chip on the front and a magnetic strip on the back. When looking to make a purchase, the user can either swipe it or insert it in the merchant’s machine. It is this machine that will read this information and communicate with the credit card company to determine whether the purchase is approved. The bill that users get and pay at the end of the month is usually a repayment of the loan they took on purchasing products or services.
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Pros of responsible credit card use
There are numerous benefits that users will enjoy if they use their credit card responsibly. Perhaps one of the most notable is that the cards grant borrowers replenishable credit. This means that buyers are able to pay off certain purchases over an extended period of time. Consumers can also use credit cards to protect themselves in the event of a disputed charge by a retailer or service provider. The card not only gives the holder leverage but also offers an avenue for the payment to be corrected or reversed.
In a world where cash is used less and less, using credit cards responsibly can help in keeping track of spending habits and knowing where your money is going. This makes it easier to modify their budgets and organize themselves by relying on their spending records.
By using the cards responsibly and avoiding credit card mistakes, users with bad credit may have an opportunity to build their credit score. However, this will require them to borrow responsibly and pay their bills on time. Users should also avoid the higher rate card and resist any temptation to cancel or destroy the card. Over time, they will be able to build their credit and enjoy the benefits that come with it.
The dangers of poor credit card use
As much as credit cards offer several benefits, there are also dangers associated with using the cards. Users will particularly be exposed to these dangers if they do not embrace responsible financial habits or keep making the same credit card mistakes.
Here are some of the dangers of poor credit card usage:
Vicious debt cycles
Most users do not realize that credit cards can keep them in debt. Here’s how. Unlike other types of loans, credit cards work in such a way that most users are perpetually using and paying, resulting in a cycle of debt. Since users keep spending and paying interest, using the cards can be costly. Similarly, the interest and fees on credit cards add up quickly, especially if you lose track of how much you are supposed to pay. This could sink you into further debt and cause unnecessary frustrations.
Credit cards give users a lot of freedom, allowing them to be impulsive. Buyers can spend money in any place, at any time and in whichever way they see fit at the time. This means that they may end up buying items that they either had not planned for or do not need altogether. With credit cards, minimum payments will see users paying interest and fees on the card without actually reducing their balance. This means that consumers are likely to fall further behind each month if they keep paying only the minimum payment.
Personal loans vs. credit cards
With the serious financial commitment associated with any loan, borrowers need to understand the options available to them before making a choice. When comparing credit cards with personal loans, there are a number of factors that borrowers should be mindful of.
The loan amount:
Personal loans would be a better option for borrowers who need a large amount of money that they cannot pay back quickly. This is because the interest will be calculated and spread out over a period of time to ensure manageable payments.
The loan term:
Personal loans have a significantly longer loan term than credit cards. This means that both the interest and the payments will be spread out over the full term of the loan. On the other hand, credit cards are not designed for long repayment periods, effectively having shorter loan terms.
When you need cash:
While credit cards can be considered to be a type of loan, they are not cash. What the user gets are cash advances at a fee. Personal loans are cash and are not associated with additional fees. Any borrower who needs cash or wants to make a purchase where there is no way to accept a credit card can consider taking out a personal loan.
Unlike a personal installment loan where a borrower knows how much they are approved for, a credit card can encourage impulsive buying. Depending on an individual’s financial discipline, they can decide whether to go for a credit card or a personal loan.
Credit cards give a convenient way out for those drowning in financial struggles. Instead of having to wait and save, users can get the things they need and want at that particular time. However, users should be aware of what an apr credit card offers them as compared to other cards.
Refinancing credit cards
While it is always advisable to avoid making credit card mistakes, one should not lose hope after making some. Certain mistakes can be corrected through credit card refinancing. Credit card refinancing can help borrowers to save money and avoid accumulating more debt. It can also save borrowers the hassle of having to think about several payments and instead focus on one payment.
Simply put, credit card refinancing means taking the current debt from one or more credit cards and transferring it to another one. When done right, refinancing can help to save the borrower the money they pay on interest on their current credit card. By reducing the amount of money you pay every month, this will also give you an easier time paying off the debt.
Another common way of refinancing a credit card is to get a refinancing loan to settle the debt. Most credit card users will take out a personal installment loan to pay off their credit card debt. With the loan terms and interest rates associated with personal loans, the borrower will be in a more comfortable position to meet their financial obligations. However, it is important to remember that there are positives and negatives to using personal loans to consolidate debt.
Alternatives to using credit cards
Besides credit cards, there are other possibilities for anyone looking for a line-of-credit. Apart from educating themselves, borrowers should take time to ask different lenders what they offer. This will help them to make an informed choice and access financial products that will enable them to meet their needs. Today, although online lenders may be less well-known, they offer the kind of flexibility and creativity that borrowers need.
One of the best alternatives to using credit cards is to open a savings account. Even more where one can put in money for the extra things they would like to have. Whether it is a vacation, occasional shopping spree, or an emergency, savings will be a cheaper alternative. Even more as they do not attract fees and interest. It will also help consumers to avoid the common credit card mistakes that could cost them a fortune.
Apart from taking out loans with traditional and online lenders, consumers can also turn to family and friends to finance their purchases. For borrowing from family and friends to be considered a smart move, the money obtained should be put to proper use. In addition, the item to be bought should make for a necessary purchase. This will help consumers to avoid getting themselves further into debt.
Deciding which credit card to get
The importance of credit card shopping cannot be denied. It is not easy to decide which credit card is right for you. However it is important to consider your wants and needs. Users should also familiarize the different options that they qualify for at that particular time.
With the wide range of options available today, prospective users should do their research and ask the issuing companies the relevant questions. This will not only help them to avoid some of the credit card mistakes but also inform them of what they are about to get themselves into. Consumers can also talk to financial experts to help them learn the differences between the different credit cards, including an apr credit card and a simple credit card.
Smart Money Tip!
In the end, there is one thing that all credit cards have in common. The user is the customer and should end up happy with both the financial services and how they use the card. Ultimately, the more attentive and informed an individual is, the better the choices they are likely to make. This is in relation to choosing as well as using the credit card.
Common credit card mistakes to avoid
How consumers use their credit cards is just as important as the particular card they select. The manner in which you use the card will play a vital role in determining whether you make credit card mistakes. Here are some common mistakes users should avoid in order to save money.
Making minimum only payments
Most credit card issuers allow for minimum repayments to make it easier for users to repay their balance. This is usually a fixed amount that is calculated as a percentage of the balance. A factor that makes it tempting for those with a tight budget. While there are times when financial circumstances may force users to make minimum payments, doing this regularly is one of the most common credit card mistakes that will cost a borrower a lot and result in other financial implications.
Making minimum payments means that a consumer pays only interest and the applicable fees. In essence, their balance does not reduce through the payments. The result is that the amount of time it takes to pay off the credit card balance will increase significantly. This, in turn, increases the amount of interest that the user pays on their credit card. Regardless of whether you are using a credit card, you should resist the temptation to make minimum only payments.
The only time that minimum payment will make sense is when they are used as a strategy to get out of debt. However, increasing the monthly repayments helps to pay off the balance faster and at a lower cost.
Paying bills late
Just like with any other loan, borrowers have to repay the money once it has been made available to them. This is why it is important for credit card users to think carefully before making any purchase decision. Ensure that they are comfortable with repaying their loans.
Credit card debt is similar to other loans. Indeed, there are due dates by which users should pay their bills. Failure to send monthly payments on time will not only result in penalties. They will also hurt the user’s credit score. Most credit card issuers will charge late fees depending on the number of times that a consumer has been late over a given period of time. This is why it is recommended that users come up with a system to remind them of their due dates.
To understand why this is one of the credit card mistakes that can have a big impact, borrowers should be aware that the credit card issuer can raise the interest rates once the user’s credit score reduces. Every credit card holder should have a clear understanding of what the different actions and decisions they make in relation to their credit card affect their lives.
Loaning the credit card
One of the most common credit card mistakes that people make is giving their credit card to someone else. This may include giving it to a family member or friend as a favor or to make purchases on your behalf. While this in itself does not seem to have a problem, the credit card holder will have no control over the purchases that could be made in their absence.
Regardless of who uses the credit card, once the purchase has been approved, the person whose details appear on the card will be responsible for paying the bill. This is why it is essential to ensure that you are prepared for all the purchases that may be made when you loan the credit card. Failure to do this will result in unexpected interest and penalties.
With the temptation associated with credit cards. It is clear that the financial tools can lead one to spend beyond what they had budgeted for. Leaving purchase decisions to another person may sink you further into debt, leaving you with accumulated debts that you may not be in a position to afford. In the end, such a move may affect your credit score and limit your chances of accessing other loans.
Taking a loan offer without comparing it with others
Today, there are many companies that offer credit cards. While this is a good thing, it makes it difficult for consumers to choose the right credit card company. In addition, it means that it takes a considerable amount of time to ensure that you are getting the best possible offer.
If borrowers are to avoid common credit card mistakes, they should take time to compare the various possibilities available to them. A small difference in interest could result in significant savings in the long run. They could also ease pressure on your wallet when the bill statement is sent. Consumers should also not underestimate the importance of consulting financial experts before applying for and taking a credit card.
Ultimately, credit card cash advances should help users to meet their financial needs. They could make it easier for them to achieve their goals. Whether you prefer an apr credit card or a credit card, you should be sure that it offers the financial services you need. This, when combined with responsible use of the card, will help you avoid the headaches and frustrations that come with late payments and defaults.
Waiting to report a stolen or lost credit card
There is a chance that credit cards will get lost or stolen. The decision you make after such an incident will affect your life in a major way. This is because the credit card holder can be a victim of identity theft. With their information being used in all manner of fraudulent activities. Although most of the credit cards today have security features in place, reporting the matter to the relevant authorities will help in canceling it.
Taking too long to report the loss or theft of the credit card gives the thief time to charge up the account. If the credit card holder reports the theft or loss of the card in good time, they will have no liability for any fraudulent charges that may be made.
It follows that one of the most serious credit card mistakes is failing or taking too long to report these incidences. Apart from law enforcement agencies, credit card users should inform the issuer in case of theft or loss.
Applying for too many credit cards at once
Although debt can come in handy when one is in financial need. There is always a need to take out loans responsibly. When one is in need of financial assistance, they may be tempted to take out any loans that they qualify for. When it comes to credit cards, some people apply for too many of them at once. This ranks highly among credit card mistakes that could cost you a fortune.
Every single credit card application that a consumer makes has the potential to take away from their credit score. In case a consumer tries to apply for several credit cards over a short period of time, it will reach a point when denials become more frequent. This is because lenders will grow suspicious about the sudden increase in the number of applications. Financial experts recommend applying for the cards one at a time and on an as-needed basis.
Apart from affecting the applicant’s credit score, the more credit cards one has, the higher the chances of making huge purchases on impulse. This means that the consumer will have several bill statements sent to them at the end of the month. In the end, the credit card holder may be unable or struggle to pay off the debt.
Not knowing your credit card terms
Most credit cards have very confusing terms and conditions. With limited knowledge on the financial tools, it will take a consumer a considerable amount of time to go through and understand the terms and conditions. However, not knowing what the credit card terms are could end up being one of the most costly credit card mistakes.
It may seem like a lot of work. Knowing the terms offered on the service and how the company handles late payments will help in financial planning. This also gives the consumer more control over the associated costs. They will also be in a better position to decide how to use and how not to use the card. They will be aware of how the creditor will respond to certain actions.
Whether you are using an apr credit card or a simple credit card, you should review the terms of the credit card at least once a year. This can be done by visiting the credit card issuer’s website or requesting them from customer service. The most important thing is to keep abreast of the terms and conditions.
This list is by no means exhaustive. There are many more credit card mistakes that could cost you a fortune. Right from the time that one is considering applying for a credit card, they should have a clear plan of how they intend to use the financial tool. Some of the actions and decisions that could prove costly include making purchases you cannot afford. Not to mention maxing out the card, paying annual fees, co-signing an account. Borrowers should educate themselves about the basics of credit cards if they are to avoid some of these mistakes.
So what’s the best way to avoid credit card mistakes?
One of the best ways to avoid costly credit card mistakes would be to embark on a thorough credit card shopping exercise. This will not only help you to identify financial companies that charge affordable interest rates. Also get a card that does not have hidden fees. However, with the numerous options available, making a decision on which card to get can be overwhelming. This is why we help consumers to find a lender, effectively helping them to increase their chances of getting financial services that meet their needs. As a third party that is not in the loan business, we ensure that the process is both quick and easy so that you enjoy a hassle-free borrowing experience. In the end, borrowers will meet their needs, achieve financial growth, and reach their financial goals through prudent management of the resources available to them.
Cole is a personal finance research analyst and writer with extensive experience in building and maintaining a corporate brand utilizing both qualitative and quantitative methods. Cole has written on a diverse range of topics including financial planning, cryptocurrency, commercial real estate, and tax strategy. A graduate from Drexel University, Cole seeks to demystify financial borrowing and help individuals achieve financial freedom.