5 Ways to Sidestep Common Credit Card Blunders
May 8, 2017
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Credit cards can seem like the solution to all of life's financial problems. Can't afford to pay the electric bill this month? Charge it to your credit card and worry about it later! Want to go on a $5,000 trip to Italy, but don't have the cash? That's what credit cards are for, right?
Unfortunately, this mindset lands numerous people in tremendous debt. Credit cards aren't a supplementary income stream, and countless borrowers forget they have to repay whatever they charge — often with interest.
Even the most responsible cardholder occasionally makes a mistake that ends up costing him thousands of dollars. The average American carries about $16,000 in credit card debt. It’s sometimes impossible to avoid racking up debt — like in the case of an emergency — but there are a few easy ways to avoid credit card trouble:
1. Don’t Juggle Too Many Cards
There’s no magic number of credit cards you should have in your wallet. The size of your card collection depends on your spending habits, the strength of your credit score, and your financial responsibility.
If you feel a compulsion to apply for every offer you receive, you might want to stop and consider why you want yet another card. Are you struggling financially and in need of extra credit? Do you have a large purchase in mind, but no cash to cover it?
This sort of spending can get you in trouble, and it’s much easier to rack up crushing debt with multiple cards. It's also easier to miss payment due dates and lose track of interest rates, which can hurt your credit score and cause your debt to snowball. Instead of applying for another card, pay down your existing debt and focus on using the cards that meet your financial needs.
2. Avoid Impulse Purchases
It probably goes without saying that you shouldn't make purchases you know you can't afford, but that goes double for impulse purchases. It might be tempting to pick up a new Louis Vuitton handbag or designer shoes, but the novelty will have faded by the time your credit card bill comes.
Many people convince themselves they’ll pay off a new TV or furniture set before they start accruing interest, but they’re playing a dangerous game. You never know when an emergency will pop up or when you might lose an income source, and nobody wants to spend a lifetime paying off interest for a purchase that wasn't even necessary in the first place.
Any time you find yourself tempted to splurge with your credit card, take some time to consider whether you actually need that item. Once you have a bit of distance from the impulse to buy, you can safely decide whether you still think it’s a good idea.
3. Steer Clear of the Minimum Payment Trap
It's tempting to eke by with the minimum monthly debt payment, but this approach can lead to problems down the road. Credit card interest rates can get pretty steep, with the average rate hovering at about 16 to 17 percent. Even if your balance is relatively low, you could end up paying hundreds (or thousands) of dollars in interest by making minimum payments.
This is particularly important for new credit card users, as it’s easy to get carried away with purchases and end up with so much debt that even minimum payments become out of reach. Rather than let debt pile up, pay off credit card purchases as you go along. Set up automated payments or log in to your account every few days to stay on top of your debt.
4. Pay Attention to Due Dates
Late payments are exponentially more harmful than minimum payments — particularly because they can destroy your credit score. Missing your due dates can trigger late fees and higher interest rates, further exacerbating your debt situation.
If you know you can't make an upcoming payment, call your credit card company ahead of time and explain your situation. They’ll sometimes be understanding and willing to waive late fees if you offer decent justification. If you simply skip your payment, they probably won't be as accommodating.
5. Read the Fine Print
Credit cards offer myriad exciting perks and rewards, but it’s important to pay attention to the fine print. Some of the most appealing credit cards can include hidden fees or other surprises, so know what you’re getting yourself into before you sign on the dotted line.
Hunt for details about interest rates, annual fees, credit limits, and any other charges or terms you might encounter. A 0 percent introductory rate is tempting, but work to find out when that rate expires. Some cards include security interest clauses, which allow the issuer to legally repossess items you purchased with the credit card if you fall behind on payments.
Credit cards are incredible tools that can provide benefits and rewards you can’t get with cash or debit cards. It’s important to use them wisely in order to avoid mountains of debt. As long as you’re financially responsible and do your research, you'll be able to enjoy the benefits of credit without any of the drawbacks.
Need some help sorting through the hundreds of credit card options available today? Use our free Credit Card Match service to find one that jives with your financial history and spending habits.