Credit cards require a huge amount of discipline, a small mistake early on can cost you thousands of dollars and prolong the life of your credit card debt,
Here we list some of the common credit card mistakes that you would be wise to avoid.
#1 Not doing a balance transfer to save on interest
A big mistake that can cost you thousands is not looking for a balance transfer credit card that can save you money.
If you have an existing credit card debt costing you interest, switching to a 0% card could save you a lot of money. A huge mistake people make is not bothering to hunt down a promotional offer that gives them interest free periods.
For instance, right now you could switch your credit card debt to 0% interest for 12 months to 24 months. Check out St.George Vertigo or Westpac Low Rate.
#2 Having multiple credit cards
A common credit card mistake that people make is having more than one credit card. While having multiple credit cards may seem like a good idea, often it is simply a trap to get into more debt and rely even more heavily on the use of credit to fund your lifestyle.
Having multiple credit cards arms you with more spending power and eventually, you will use it. Despite the lovely rewards different credit cards promise, at the end of the day, you’ll end up paying back for it, with interest.
#3 Not understanding your credit card fees & terms
Be sure to read your terms and conditions and fully understand your credit cards fees and limits. Many card holders face unnecessary charges that could easily be avoided and simply adds to their growing credit card debt.
It is also wise to note the date of your credit cards annual fee (if it has one) as by knowing the date, you can opt to cancel the card prior to it renewal. Many people intend to cancel a credit card but leave it open because they have only just paid the annual fee.
#4 Making minimum repayments
A common credit card mistake people make is only making the minimum repayment on a monthly basis. If you pay the minimum amount, your debt will last longer and your interest will be higher.
Always opt to pay off your card in full where possible or simply pay a big chunk of money over the minimum repayment.
#5 Paying your credit card late
Paying your credit card late results in late fees. Late fees are completely avoidable and often compound the problem of debt even further.
Pay your credit card on time always. A great credit card trick to do this is to set automatic repayments for the minimum amount every month and then make a manual lump sum repayment yourself later on.
#6 Applying for multiple credit cards at once
When applying for a credit card, it looks bad on your credit report if you apply for multiple cards at once. It looks desperate to the lenders and makes them question whether or not you were rejected and thus why you are shopping around.
#7 Withdrawing cash via ‘cash advance’
You’ve probably heard it a hundred times, but cash advances are the way many savers become unstuck. Often it results in years of pain due to silly decisions made to withdraw cash at unreasonable rates.
Never, ever, use your credit card to withdraw cash. Cash advances come with a very high interest rate and should never be relied on in that way.
Remember, It’s too easy and too convenient to be able to get cash out when you have none so avoid this bad credit card mistake from day one.
#8 Assuming your credit card limit is your threshold
Just because you have a credit limit of $10,000, doesn’t mean it’s your spending threshold. While technically you ‘can’ spend up to that amount, if you did, you would be in a pretty rough place when it comes to making repayments.
See your credit card limit as a far-off mark that you will never reach. Consistently nudging your limit higher at the end of the month is a sign you should be reconsidering your usage and budgeting to allow more financial space for saving.
#9 Going for a premium credit card when you don’t need it
Before forking out a couple of hundred bucks to get a premium credit card, consider your credit card usage and whether the extra perks (that come with extra cost) are worth your while. Assess your ideal credit card usage and be sure to overlay it with a sense of reality; ask yourself whether you are able to repay the credit limit in full if you ‘maxed’ out each month or whether the rewards points are worth the higher annual fee.
The extra perks of premium credit cards can often include free travel insurance (when you make your trip purchase via the card) – so be realistic and question whether these kinds of perks actually benefit you.
If you’re not using the premium credit card for all of its extras, perhaps stick with the low rate/low fee credit cards instead.
#10 Not checking your credit card statements regularly
Not looking at your monthly credit card statement suggests two things; firstly you don’t want to know what’s on there, which alludes to the second point – you are uncomfortable with your credit card usage.
Not only is it quite common to spot fraud on a credit card statement (transactions you haven’t made and would have otherwise paid for if you didn’t check for them) but often retailers mistakenly double charge you for things.
Smarten up and begin checking your credit card statements at the end of each month. Go through the paper statement line by line and ensure you report anything out of the ordinary right away. It will also help you understand just how much money you are spending; it’s often quite confronting to review a credit card statement and see all of the little purchases you have made of the past month.
#11 Not realising your credit limit impacts your other lending
It doesn’t matter whether or not your credit card limit is maxed out or completely debt free, lenders when applying for loans will look at your credit limit as a liability that could impact your ability to repay their money.
So, if you use your card for emergencies or as a helpful tool, it’s best to keep your limit restricted. If you are considering increasing your limit due to financial strain, it’s definitely worthwhile looking at ways to improve your usage, not your disposable funds.