In many people’s lives, credit cards tend to take on one of two roles. One is that of an indispensable ally, one that is always available to bail you out of a tough situation at any hour of the day or night. The other? Well, that is of a cruel enemy, dragging you into a deep pit of debt and then slapping you with extra fees when you are down. Even when things are harmonious in your financial house, credit cards can be fickle friends. Make one mistake â“ a single missed payment, one charge too many that pushes you over your limit or simply apply for too many cards â“ and it can have a negative impact upon your credit score. That, in turn, can result in higher interest rates and other bad news for your budget.
Here are a few of the most common â“ and not to mention expensive â“ credit card blunders that are best avoided.
Late Payments
It may be fashionable to be late to a party, but it’s downright dumb to be late paying your credit cards bills. Not only will missing a payment cause your card issuer to charge you a late fee, but it will lead to them increasing the interest rates on your account. Your payment history accounts for about 35% of your credit score and one single messed-up payment can cause your score to take a serious dive. If you are not set up to make payments online, make sure you drop your check in the mail well in advance of its due date.
Making the Minimum
If you are trying to pay a balance, you must make more than just the minimum payment. Consider this example put forth by the website, omaha.com:
With a $5,000 balance and annual interest of 14 percent, a $100 minimum payment will pay off the bill in 22 years, with $6,110 going for interest. If you pay $150 a month, the bill is gone in four years with $1,369 in interest.
Federal Laws are now in place requiring lenders to display, on every statement, how long it would take you to pay off a balance making only the minimum payment. This as well as the monthly amount you would need to pay, in order to pay off the debt in three years.
Withdrawing Cash On Your Card
DO NOT, as in ever, ever, ever, use a credit card for cash advances, except in the instance of an absolute emergency. Aside from the dizzyingly high interest rates associated with pulling out cash on your cards, there are typically additional fees. Also, interest begins to accrue IMMEDIATELY on the amount of cash withdrawn which means that you will be paying back much more than you borrowed even if you quick about it.
Paying An Annual Fee
Some rewards cards come with an annual fee and sometimes those rewards are tied to the amount you charge. So no matter how nifty the perks on your plastic, they may not be worth what you will be paying for them. Make sure you are not tempted to spend more than you normally would on your card just to get those rewards.
You should always take the time to make sure you understand the exact terms of your credit card. That way you will avoid unnecessary fees and penalties. If you are in the market for a new card, comparison sites such as credit land can be an invaluable tool. If you know how to use your credit cards mindfully, your wallet will house plastic pal instead of foes.
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