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You could love or hate your credit cards but, of course, they’re just little pieces of plastic with your name and a number on the front and a magnetic strip on the back. Whether you love or hate your credit cards you know it really isn’t the cards. It’s you and how you use them. Credit cards can be real friends when you use them correctly. For example, they offer instant gratification – for better or for worse. There you are browsing through one of your favorite stores and you spot a smart TV for just $499. Unfortunately there’s only $30 in your wallet. But, hey, you don’t have to save money for three months to buy that TV. Just whip out that little piece of plastic and you’ll walk out of the store with it under your arm.
Convenience and security
Credit cards also offer both convenience and security. It’s just much more convenient to carry one or two credit cards than a big wad of cash. If your card is stolen or if you suffer identity theft most credit card issuers limit your liability to just $50 and many cases will even waive that. And of course there are those juicy rewards programs offered by many credit cards. Depending on the card you could earn cash back, points redeemable for travel and other goods and services every time you buy something. If you use your cards regularly and pay your balances in full every month, you can actually come out ahead. Use those cards correctly and you could be flying home free for a weekend with friends.
On the downside
Unfortunately, those little pieces of plastic can turn into little devils if not used correctly. There are some very bad mistakes that can be made with credit cards and here are eight of the worst.
1. Having too many credit cards
There is a simple equation at work here. The more credit cards you have the more likely you are to use them, which means the more likely it is that you will get into debt. In addition, when you have many credit cards this can negatively impact your credit score, which will reduce your ability to borrow money. Ideally, you should probably have only one credit card because this makes it easier to track your spending and to make your payments on time. There is a case to be made that having three to five credit cards won’t be a problem but if you find your balances are increasing, it’s a danger sign and you need to definitely not get another card
2. Misunderstanding the introductory rate
One smart thing to do if you have high interest credit cards is to transfer their balances to one of the 0% interest balance transfer cards. But when you do this don’t mistake the introductory interest rate for the permanent rate. Those cards make a big thing about the number of months where you won’t be required to pay any interest at all but they tend to put their permanent interest rates in very small type. If you don’t pay off your balance before your introductory period expires you could end up paying 19% to 20% on it.
3. Failing to read the fine print
If you do make a balance transfer it’s important to read the fine print. It could include two-tier balance transfer fees as well as some limitations. In most cases, your introductory rate will apply only to balance transfer amounts or to purchases for a certain period of time. There could even be a security interest clause that would allow the card issuer to repossess items you bought with its credit card if you fall behind on your payments.
4. Not shopping for the best interest rate
One of the biggest mistakes people make is to not do what’s called rate shopping. Before you sign up for a new card look for the best possible APR or interest rate. When you get unsolicited credit card offers make sure you note the rate. This is because if you’re having financial problems you probably won’t get the best rates or terms. Always comparison shop for a credit card
5. Making only the minimum payments
If you make only the minimum payments on a credit card where you have a high balance, you could be repaying the money over several lifetimes. Here’s an example of what this can mean. Let’s suppose you owe $5,000 at 15% and make just the minimum payment of $100. In this case it would take you 79 months to pay off the debt or about 6 1/2 years. Just imagine how long it would take to pay off $10,000 or more.
6. Paying no attention to your monthly statement
When you pay attention to your monthly statements you will know your due dates. This will also allow you to make sure that all of the charges are legitimate. You’ve probably heard of the big data breaches that have occurred recently. These are bound to turn into identity theft and you could be a victim. If you ignore your monthly statements there is no way for you to know that your identity has been stolen. In addition, one of the worst things you can do is be late in making a payment as this can have a very bad effect on your credit score. If you won’t be able to make a payment on time, call the credit card issuer explain what happened and ask it to waive the late fee. Most credit card issuers will be happy to work with you if you just ask for help.
7. Exceeding the credit limit
When you review your credit card statements every month you’ll also keep from exceeding your credit limit. While the CARD Act stopped the policy of automatically enrolling customers in over-limit programs with high fees, it can still be very embarrassing to stand at checkout and find that your card has been rejected. If you review a statement and find that you’re getting close to your credit limit try hard to pay down your balance before using the card again. And when you go over the limit, you will be charged an over-the-limit fee.
8. Using credit cards to buy things you don’t need
Probably the worst mistake you can make with credit cards is using them to buy things you don’t need. One good exercise is to sit down at the end of the month, go over your credit card statements and look for things you purchased that you don’t really need. There’s a simple fact that we all spend more using credit cards than cash. When you review your statements you might be really surprised at the number of items you bought you could have done without. We all fall victim to making purchases that at the time we think are needs but are just really impulse buys. If you are about to make a really significant purchase like a smart TV or a new refrigerator, wait 48 hours. If you still think you want the item wait another 48 hours. If after that you still believe you need the item then go buy it.
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