5 Credit Card Mistakes to Avoid So You’ll Never Find Yourself Knee Deep in Credit Card Debt
by CashOctopus • September 3, 2019
For Singaporeans who are considering getting cards or already have them and want to know the best ways to avoid debt, it is important to be aware of what not to do. Credit card users can easily end up deep in debt due to costly credit card mistakes that range from racking up interest to late fees.
Many consumers find it challenging to control their credit card balances. However, there is no need to worry because simple steps such as changing your spending habits can make debt much more manageable. While a credit card may appear to be a convenient solution for making transactions, the reality is that this small plastic card has the potential to cause extensive damage if the user is not careful.
Credit cards should always be used appropriately to enable people to protect their credit scores and stay out of debt. There are various credit card mistakes that can damage credit and cost a lot of money. Steering away from the following mistakes when using credit cards is essential for avoiding massive credit card debt:
1. Piling up debt that cannot be paid off every month
Many people struggle to pay off credit card debt that has accumulated over time. This is because cards are often misused to purchase items that people would not usually buy if they were restricted to spending cash. When consumers are not conscious of what they spend their money on, there is a tendency for them to use their credit cards rather than cash and they end up buying much more than they would have.
It is very easy for individuals to spend freely and build up credit card debt and carry balances at the end of every month. The debt grows rapidly due to the high interest rates. This creates an ongoing cycle of making credit card payments every month, and most people will have to apply for a personal loan from licensed moneylenders in order to tide through.
Consumers are encouraged to handle their credit cards like debit cards. Upon making purchases with credit cards, it is always a good idea to log into the account and make balance payments on the card. This means that as soon as credit card purchases are made, they will be reflected and spending can be regulated.
2. Minimum monthly payments
Paying only the minimum amount every month means carrying the balance and racking up a lot of interest. This can be avoided by planning spending in order for the budget to be able to cover the whole bill on a monthly basis.
While minimum payments help people avoid late fees, there will be interest on balances carried over unless the entire bill is cleared each month. Additionally, failing to pay off the whole balance means that any interest-free period will be lost for the following month, which makes the situation worse. It is important for everyone to ensure that they stick to spending what they can afford to pay back.
Paying more than the minimum significantly lowers the amount of interest that is paid on debt over time. Paying the full balance each month has the additional benefit of preventing people from being weighed down by interest payments.
3. Thinking that credit cards are free cash
It is not unusual for individuals to overspend when they get credit cards, such as going on quick vacations to Bali. This is because consumers are usually restrained when they only rely on cash to make their purchases. People do not have the liberty to purchase more than they can afford because their cash will run out. This causes consumers to be cautious whenever they use cash to buy something. However, when they move to using credit cards, this thoughtful planning vanishes.
When using credit cards, people do not have to consider how much money they have in their accounts because they feel like they have free cash when they have credit cards and can buy random items that they come across.
Creating a proper budget and sticking to it is crucial regardless of how tempted a person may be to make a substantial purchase. Consumers should strive to ensure that the month never ends with more debt than they can comfortably afford to pay.
4. Missing payments
Missing the due date of a repayment leads to late fees and can potentially damage a person’s credit score. This can be avoided by setting up an automatic payment schedule that covers credit card balances every month. Automatic payments are a good way to stop constantly thinking about when repayments are due.
Late payments may not appear to be a serious concern but they can cause extensive damage. They not only lead to late fees; they can also bring credit scores down. This can make it more difficult to apply for credit cards or loans in the future.
5. Choosing the wrong card
It can be tempting to ignore the details due to the incentives that the card comes with such as rewards programs or a rebate. However, this can lead to choosing the wrong credit card, which is a common mistake that consumers make. It is essential to determine the most suitable card according to your needs and lifestyle.
Although getting the best deals possible is an important consideration, the risk of carrying balances and high interest outweighs the benefits of gaining travel points and other perks. People are advised to carefully read all the terms and conditions on their credit cards and ensure they understand how interest works.
Being aware of the card terms and conditions gives users much more control over their costs. They gain the ability to know how they should use their credit cards according to factors such as how the creditor deals with late payments.
Conclusion on Credit Card Mistakes
Maximising on the benefits of a credit card involves using it responsibly and wisely. People should focus on charging what they can afford to pay every month, which helps to build credit scores gradually. This also serves as evidence to financial institutions and lenders of the creditworthiness of the consumer is. Subsequently, this can facilitate better credit card offers and lower interest rates on personal, mortgage and auto loans. Paying bills on time and charging what you can afford are among the key factors of avoiding credit card debt.
Using a credit card properly is an effective way to establish a good credit history. It is easy to damage your credit score, miss payments and rack up an excessive amount of debt when a person has access to a credit card. Card users are vulnerable to various traps. To ensure that you do not fall into them, various credit card mistakes need to be avoided at all costs.