Did you know that a credit card can get you into trouble? Unwise
and reckless use of credit card can wreak havoc on your finances. Often, people normally get a credit card with
good intentions but they often end up with piled up debts due to the following
blunders.
1. Making Credit Card Payment Instead of Cash
Whether you are
out of cash or you just prefer the convenience of lashing out the plastic,
there is one thing you should always remember: paying by cash and by plastic
aren’t the same things. If you have the habit of making everyday purchases like
gasoline, groceries and meals on credit, you are spending your future income
for today’s expenses at an interest.
This is one of the greatest credit card blunders people keep on making.
Instead of using credit, it is better to use a debit card to ensure that you
keep up with your spending.
2. Sticking to the minimum payment
The rationale
behind most people not paying beyond the card balance is that so long as you
don’t have to pay more, you rather save the extra bucks. But the truth of the matters is that paying
only the minimum on the credit card bill makes you to incur much higher finance
charges and increases the cost of debt over time. With time and with more
purchases, your debt has piled up to unmanageable levels. For instance, if you
have a $4,000 balance on the card that requires a minimum of 2% payment with
interest rate of 18%, it will take you almost 36 years to clear the balance.
However, you added just few dollars each month; you will clear the balance
sooner and at lower interest.
3. Failure to track purchases
The problem with credit card is that
it gives the impression that one has access to free money. Consequently, credit
card holders go about purchasing stuff without feeling the pain of the wallet.
In other words, it makes you spend money while not really feeling like you are
spending money. To avoid surprises at the end of the month, keep track of all
the things you spend your money on.
4. Making late payments
Making late
payments is a common ailment among credit card holders. The rationale behind it
is that it only takes a few computer clicks. So, you figure you have a lot of
time. The problem with this is that you may fail to factor in the account
processing time. This makes you vulnerable to late payment penalties and bumped
up interest rate as well as lower credit card score. Did you know that about
35% of your credit score is determined by overdue payments?
5. Applying for too many credit cards at the same time
The more credit
card application you make within a short period of time, the more points gets
knocked off your credit score. Lenders also start getting suspicious and make
you get a lot of denials. You should apply for one credit card at a time to
avoid such.