The Top Five Credit Card Pitfalls To Avoid

by Hank

Credit cards are relied upon by almost everyone these days because they are convenient. They have become a huge component of many people and their household budgets. Credit cards have led us to a nation and a lifetime of indebtedness. Most people know understand that credit cards should be paid off in full at the end of each month, and you should never charge something that you cannot repay. Once you start charging things and paying interest, the balance on your credit cards quickly become a burden and cycle that is hard to get out of. Credit cards must be used wisely in order to avoid a crisis. There are some credit card traps which entice consumers and lead them into a void.

Here are five credit card pitfalls to avoid…

Pay Only The Minimum. Most credit card companies require users to only pay a minuscule percentage of your balance as the minimum monthly payment. A lot of credit card companies will charge you interest plus 1% of the balance each month for example. But, if you pay only the minimum it could take you years of spinning your wheels before you can pay that card off in full. And, that is just assuming that you do not add any more purchases to the card. For example, if you had to pay $2,500 for a new transmission in your car with your credit card, it would take you 17 years to pay the entire balance off if you were just paying the monthly minimum payment of $62 (18% annual interest). And, in that time, you would have paid $3,173.22 in interest. You would not even still have the car by the time you paid off your credit card. This is the main reason why credit cards are a trap and a hamster wheel that you just cannot get off of if you are tripped up by one of these five pitfalls.

Paying Late. Paying earlier can help you from paying a late fee, and it can also keep your interest rates low. Paying on time is the biggest characteristic that the credit bureaus look at when determining your credit score. Make sure you know what your due date is, and if you pay by check, pay a few days earlier as check clearance process may take time. Late fees can run from $20 to $40 and show up on your credit reports triggering high interest rates.

Exceeding Your Credit Limit. Keep your credit limit in mind and stop buying on credit when you have reached that limit can help you from falling into the debt trap. An over limit fee is charged, ranging from $30 to $50 a month, along with the differences that you are over.  Your credit card may also be frozen until you return to your limit. A higher interest rate can also be charged to you now.

Cash Advances. Credit cards offer a feature called cash advances. This convenience allows a user to draw out cash via their credit card or through convenience checks. It may be convenient to you, but it will not be convenient to your wallet. The interest rate for cash advances is higher than a regular purchase you would make with the card. Cash advance may not have a grace period, unlike regular purchases having a 30-day grace period to pay back. You have to be very careful with these “conveniences” and check your card’s fine print.

Annual Fees. Some credit cards carry reward points, along with introductory low interest rates. But, most of these cards tend to impose a high annual fee, sometimes twice as much as a standard credit card. There are plenty of cards out there without any annual fees for you to apply for if you really need credit. I am a huge fan of my American Express charge card just for this reason, but my wife and I pay it off at the end of the month. Unlike a credit card, the charge card requires that we pay it off at the end of the month. We use the card more as a budgeting tool than anything else. There are many pieces of fine print with these types of cards and may not be suitable for everyone. Users should read the fine print and approach with caution. Sometimes the rewards are not worth the paper their printed on. Often, you will just come out ahead financially if you saved up for the purchase and paid with cash instead of trying to build reward points.

Credit cards can be a tool or a weapon that will burn you. Many families spend decades trying to dig themselves out of credit card debt. If you have to use credit cards, avoid these five huge pitfalls for a clean financial bill of health and a good credit score.

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