The way you use your credit card will determine your overall financial health. Using credit cards responsibly will ensure that you do not take on too much high-interest debt. And this is important if you want to avoid hurting your credit score.
Credit cards need to be used responsibly if you want to avoid falling into a debt hole. One misstep or wrong decision regarding the use of credit cards can have serious and long lasting effects on your finances. Below are 3 credit card mistakes that you should avoid at all costs in order for you to remain financially stable and successful.
Avoid the Temptation of Using Credit Cards to Purchase Everyday Items
One thing most people fail to realize is that a credit card is not cheap money. Most of the credit cards entail high interest rates as well as fees. The card should not be used except in extenuating circumstances such as to meet a cash shortfall until the next payday.
You need to keep your budget under control and avoid paying for everyday expenses like utility bills or groceries using credit cards. $10 worth of groceries purchased using credit cards can quickly turn into $100 if you don’t pay the balance at the month. There is no need to incur unnecessary charges for expenses that you can easily pay without resorting to credit.
Avoid Making Minimum Payments
Another mistake that can turn out to be costly is only making minimum payments at the end of the month. There are two kinds of payments options that are shown on the statement each month: current balance and minimum payment.
A lot of people make the mistake of making minimum payments thinking that it is the best option of the two. However, this will lead to additional debt burden due to increased interest payment. Suppose that you have a $2,000 balance on your credit card with a 15% interest rate. If you make the minimum payments of $50 every month, it would result in you paying an interest of about $800. This amount when added to the original amount could greatly increase the debt burden. That’s why it is recommended that you consider paying the current balance at the end of each month or even paying off the credit card balance altogether.
Signing Up for Rewards and Bonuses vs. Not Applying for the Card
A number of credit card companies offer rewards and bonuses from time to time. Some of the reward plans give you points when you use the credit card for making purchases.
However, in most cases, the amount that you are able to redeem is not worth it if it results in an accumulating balance that you will not be able to pay at the end of the month. These ‘giveaways’ are not really that and the banks still end up making a profit because you are using their credit card and paying interest on it.
If you use the credit card, pay the entire balance off when you receive your bill. That way, you will not have credit card debt that could accrue if you are not careful and only make minimum payments. Even better, use cash whenever possible to purchase your items.
It is important to use credit cards responsibly to remain financially stable and well off. By following the above tips relating to credit card use, you can avoid falling into a debt trap.