A credit card is a great tool that can help you get through financial hardships. That said, if you are not careful, it is easy to get buried under a mountain of debt using credit cards. Many people don’t realize that seemingly minor credit card mistakes can quickly snowball into a financial catastrophe. However, the good news is that all these mistakes are entirely avoidable.
Avoiding these simple mistakes can help you become financially responsible and secure. Here are the top 3 credit card mistakes that you must avoid at all cost.
1. Treating credit cards as cash substitutes
If your cash flow is tight, it is tempting to use a credit card to make almost all everyday purchases. However, in doing so, you stand a risk of falling in a credit trap. Say you want to buy a certain item. And you know you don’t have the cash to pay for it. What do you do? You whip out that credit card of yours and pay for the item anyways. What just happened is that you told yourself that you could afford that thing, when in fact, you can’t! Having a credit card is not like having hard cash.
This habit of using a credit card just like cold, hard cash is the worst thing that you can do. Trust me; you will be paying for the item long after it has gone! So, be vigilant and know that credit is not same as cash in your pocket! That way, you can maintain and build on your good credit.
2. Making only the minimum payments
Another horrible credit card mistake. The minimum payments are designed to ensure that the credit card companies can get more money from you in the form of interest. Paying just the minimum payments will take a long time to get rid of the debt. In all that time, you will be paying an excruciating amount of interest to the credit card companies. All that interest is an utter wastage of your hard earned money. Your goal should be to reduce the time required to pay off the debt by as much as possible.
Just adding a few dollars to your minimum payment can drastically reduce the time required to pay off the debt. So, make sure that you pay the minimum payment plus an additional amount every month. Just pay however much you can afford, but always pay more than your bare minimum.
3. Closing your credit card account
You have worked hard to get rid of the debt on a high-interest card, and you have had enough of it already. So, naturally, you want to end the relationship and close your account, right? But trust me, that’s a bad move! It can land you a bad credit.
While it may sound great on paper, closing a credit card account is bad for your credit score. By closing a credit card account, you are reducing your line of credit. In other words, you are decreasing your market value. The best thing to do is to keep the account and not use the card at all. You can easily do that, and that won’t hurt you financially. So, take the card and shove it in the darkest corner of your closet and never think about it, but never close the account.
Credit cards can be either financially liberating or a nightmare waiting to happen. However, by avoiding the three little mistakes that we just saw, you can take control and prevent any credit card fiascos. We hope that this post will help you to be more financially responsible and proactive. Until the next time!