Credit cards – they can be very useful in establishing your credit history and getting you out of an emergency, but there is another thing they’re really good at: encouraging debt. But it’s not the card that is to blame – it’s our perception of credit cards as disposable money.
Unfortunately, the funds available on a credit card are not disposable. They have to be paid back, preferably in full so you don’t pay interest on your balance – which can be inordinately high.
But anyone can learn the art of careful credit card spending. Below are some mistakes that you should avoid in order to become a master of avoiding debt:
- Misspending while abroad. If you’re leaving the country, remember that using your credit card could incur foreign transaction fees which you may not have budgeted. Try to spend cash instead of credit to avoid unexpected expenditures.
- Spending more than you can afford. This is a recipe for trouble. Only spend what you know you can pay back within one or two billing cycles maximum. If you have to spend the better part of a year paying back your purchase, it may be beyond your means.
- Spending more than 30% of your credit limit. This can lower your credit score, so it’s best to avoid going this route.
- Paying bills late. This will result in higher interest payments, and negative consequences for your credit score. Check your bills – paper or electronic – regularly to stay on top of timely repayments.
- Taking out cash advances. This will incur high cash advance fees and higher interest rates that become active the day you withdraw the advance. Save this for emergencies only.
- Shopping without a budget. If you hit the malls without a fixed budget, you can easily spend more than you anticipated. The point of a budget is to prevent you from overspending, so make one and stick to it.
- Making minimum balance payments. When paying back your balance after the holidays, try to pay as much back as you can afford every billing cycle to pay off your card faster. Paying only the minimum will make it take a very long time to pay back your whole debt and will increase your debt, courtesy of interest rates.
We do an awful lot of advice-giving in all matters related to money because we are a financial services business. We know a lot of tips and tricks, but we also know that a lot of you out there have some tips and tricks of your own. Tell us about some other major credit card mistakes that people commit during the holidays by leaving a comment below, or join the conversation at our Facebook and Twitter pages to provide some useful advice of your own.
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