Imagine what people did before credit cards came along. Credit cards are an excellent convenience tool. The biggest problem with them is that it is easy to get yourself into financial trouble using them. Over the previous three decades, Americans have gone from using cash to charging their financial freedom away. A whole new mindset, many see a credit card more like a bank than an extension of a bank account.
Using a credit card in irresponsible ways can land you in the type of trouble that could jeopardize your financial future. Young people often don’t realize the potential of credit card debt, or the consequences of it. YOLO is a huge reason many spend decades paying off the bills of their twenties. The best way to plan for the future is by never succumbing to these poor credit card habits. Along with websites that offers a personal loan calculator, there are tools that can help you avoid debt. Credit cards are a surefire way to spend a lifetime of fighting to get back to zero.
1 Revolving balance
Credit cards were not meant to be a lending institution. The high-interest rates are supposed to deter those who carry credit cards from not paying them off monthly. The problem is that many don’t consider the interest rates as much as they should. Taking the minimum balance and applying it to your monthly budget is a recipe for disaster. The key is never to carry a revolving balance and pay the interest charge. If you allow you balance to carry on to the next month, you will be paying double or more the amount of that simple cup of coffee that you chose to charge at Starbucks. If you can’t pay for it with cash, you should be buying it at all. Pay off your balance monthly to avoid paying forever.
2 Considering the points as bonus rewards
Many credit card users think about reward points as bonuses to using their credit cards. They use their cards instead of debit or cash, thinking they are gaining points to use later. That is only true when you pay the entire balance at the end of the month. If you aren’t paying your balance than those reward points mean nothing. You won’t even cover the cost of your interest for one month if you let your balance revolve. If you just pay cash and never pay interest on your card, you can afford those luxury items outright without thinking they are money back for paying high-interest payments.
3 Thinking the due dates are optional
Many people think that the due dates are optional and let their credit card balances lapse for a month or two. They are then completely shocked when they go to get a mortgage and find that not making their payments on time has ruined their credit score. Not only will not paying on time tank your credit, but it will also up your APR rate. Worse yet, many cards will charge you upwards of $35 for any late payments. Even if you owe $5, missing a payment can cost you $35. Sound unfair? Well it is, but that is just the way that credit cards work. Make a special point to pay attention to your credit card due dates.
4 Using your credit card for everything
The only time that using your credit card for everyday purchases makes sense is when there are promotions that grant you rewards for specific charges. Many people don’t read the fine print to find that most of the purchases made for everyday items won’t even qualify them for reward points at all. Putting everything on their card thinking they are earning themselves points, most are shocked to find that barely anything registers for extra cash back.
5 Taking it to the max
Just because you have a credit limit of $2000, that does not mean that you have two thousand dollars to burn. Maxing out your credit cards is very dangerous. Not only does it mean high-interest rates, but it also affects your credit score rating. If you can’t make the high minimum charge, or you forget a payment, you will also get socked with an overage charge that can make your penalty fee as much as $70 combined. Don’t think of a maximum limit as something you should shoot to obtain. Limits are not free money handed out, in fact, they can be the most costly loan you have ever had.
Being smart about credit card spending is important not to pay dearly, and forever, on a credit card balance that gets out of control.