Many people always make mistakes on how they use their credit cards. And lose money. Here are few ways you can use to save money.
Paying After Your Monthly Due Date
Making your credit card payment late has more than one consequence. With modern technology, including calendar alerts and scheduling automatic payments, there are very few excuses these days to miss your due date every month.
First, your credit card issuer will charge you a late fee. Sometimes, if you paid only a day or two late, you can call customer support and ask them to please waive the late fee because you simply forgot – but that’s only if you’re lucky and catch a customer service rep in a good mood.
Fortunately, late payments are only forwarded to credit reporting agencies after they are 30 days late, which means that as long as you pay your bill (and the late fee) before a month passes your credit score won’t be impacted.
But, when late card payments exceed the 30-day period, your credit score can drop and your APR can jump higher (depending on your card issuer).
Making Purchases You Can’t Afford
Let’s face it: spending money beyond our realistic means is a major problem, and that’s true all over the world. Big banks have made it so easy for us to buy more than we can afford, and they love watching us stack up ridiculously high credit card debt – because it means they continue to make a killing off the interest payments we make (and may need to continue to make for several years while a balance is still carried).
If you can’t fully pay for a potential credit card purchase (like a new phone, for example) before your next payment is due, and it’s not an emergency, gather up all the self-control you can muster and don’t buy it. If you can’t pay it off quickly, you will be charged interest.
It’s a dangerous game to play, and can very easily lead to you piling on more and more debt as the months go by until you eventually near your card’s limit.
Only Making Minimum Payments
This is hands-down one of the most common mistakes that credit card holders make. Paying with credit cards is so easy – which makes it extremely tempting to rack up a few thousand dollars and only have to technically pay a comparatively tiny monthly minimum.
Sure, making the minimum payment is better than paying nothing, but it just means that more interest is being charged for the next billing cycle. It’s also a slippery slope, because just paying the bare minimum can slowly bring you closer to your card limit and could leave you vulnerable in the event of a financial emergency while you don’t have enough available balance to deal with it.
Closing Your Account for No Reason
It might make sense logically to close an unused or barely-used credit card account. It does, after all, mean one less card to worry about and a little more space in your wallet. But, as long as you don’t have too many credit cards in your name, keeping that hardly-used account open can actually be smart for your credit score.
Closing an account reduces your overall available credit, which increases your ration of debt-to-available credit. That ratio should always stay under 30%, and chopping off a chunk of your available credit by cancelling one of your cards will bring you closer to that threshold. On top of that, having a long history (of on-time payments) for that account can be positive for your credit score in the long-run.
Not Picking the Best Card
Signing up for a new credit card account is like buying a house: you need to browse a lot of options and make an informed decision based on your personal financial situation and overall lifestyle.
Only sign up for travel rewards cards if you frequently take flights and stay in hotels. Don’t get a dining rewards card if you mostly get your food from supermarkets. Try not to obtain a new credit card that charges a foreign transaction fee if you spend a lot of time abroad.
Picking the right combination of annual fee, interest rate, and rewards and loyalty programs is the best way to maximize how much you get out of your credit card.
Failing to Read the Fine Print
I know it sounds boring, but the details that will be affecting your personal credit history will all be included in the fine print of the terms and conditions that come with your credit card. It certainly isn’t the most fun experience you can go through, but it’s critical to check out everything related to how and when your interest rate could increase, which fees will be levied under which circumstances, and every other important piece of information that will impact how you pay your bill every month.
A quick read-through of the basics of your credit card terms and conditions could shine the light on a red flag – and save you a lot of trouble down the road.
Too Much Cash Advance
Using your card for cash advances is a trap. Yes, it may help you out in a short-term situation where you don’t have enough funds in your checking or savings account. But each cash advance typically comes with its own interest rate and conditions as to how it can be withdrawn – so make sure to read through the details of how your particular card works.
The cash advance interest rate is usually higher than it is for regular purchases, so save these types of withdrawals for emergencies.
Not Using Sign-up Bonuses Responsibly
Getting 50,000 airline miles for spending $1,000 within 90 days sounds like a sweet deal, but only if you enjoy the bonus offer responsibly. If you rack up $1,000 in credit card purchases just to get your sign-up miles reward, make sure you can quickly pay back that debt – and try to only spend that much on purchases you would be making anyway.
Just doing what it takes to achieve a bonus offer isn’t worth the risk of accumulating a bunch of high-interest debt that you can’t pay back.
Paying 100% of your balance before your due date each month is obviously the best way to save money and avoid paying any interest, but it’s not the end of the world if you carry a balance. As long as your balance is less than 30% of your total credit card limit, it won’t negatively affect your credit score – but you will be charged interest.
The higher the balance, the more you will pay each month to maintain that debt, so keeping your balances as low as possible is crucial.