Credit card mistakes can be costly and can damage your credit score. Here are five costly mistakes to avoid:
Paying only the minimum payment each month
This will extend the life of your debt and increase the amount of interest you pay. It may be tempting to only pay the minimum payment each month on your credit card bill. After all, it’s often just a couple of hundred dollars and that extra money in your pocket can be helpful in the short-term. But by only making minimum payments, you’re actually doing more harm than good.
Paying the minimum payment each month means you’re extending the life of your debt and, as a result, paying more in interest. In fact, if you have a $3,000 balance on your credit card with an 18% annual percentage rate (APR) and pay just the minimum payment each month, it will take you nearly 25 years to pay off your debt and you’ll end up paying more than $7,000 in interest.
Paying only the minimum payment is also a sign that you’re struggling to make ends meet. If you find yourself in this situation, it’s important to take a step back and reevaluate your finances. You may need to make some changes, such as cutting back on expenses or finding a way to make more money, in order to get your debt under control.
If you’re struggling to make your minimum payments, contact your credit card issuer and explain your situation. They may be able to work with you to create a payment plan that’s more manageable for you. You can also consider transferring your balance to a lower interest rate credit card or consolidating your debt with a personal loan. Also, you can find help by calling a credit repair company who knows what to do. Both of these options can help you save money on interest and get out of debt more quickly.
Whatever you do, don’t just make the minimum payment each month. It’s not doing you any favors in the long run.
Missing a payment deadline
When you miss a payment deadline, your credit card company will charge you a late fee. This late fee will be reflected on your credit report, and will damage your credit score.
Your credit score is important because it is one factor that lenders look at when considering whether or not to extend you credit. A lower credit score could mean that you will have to pay a higher interest rate on any future loans that you take out.
It is therefore in your best interest to make sure that you do not miss any payment deadlines. If you are having trouble making a payment, contact your credit card company as soon as possible to arrange a payment plan. This will help to avoid any late fees and damage to your credit score.
Carrying a balance that is too close to your credit limit
This will hurt your credit score and could result in fees if you go over your limit. This is because your credit utilization ratio will be too high, and creditors will see you as a higher risk. Additionally, if you do happen to go over your limit, you’ll be charged over-limit fees, which can add up quickly. To avoid all of this, make sure to keep your balance well below your credit limit.
Taking cash advances
There are a few reasons why cash advances can be harmful to your credit. First, the interest rates on cash advances are usually much higher than the interest rate on purchases. This means that you’ll accrue more debt if you use your card for cash advances than if you just used it for regular purchases. Additionally, most cards charge a fee for cash advances, which can further add to your debt load. Finally, cash advances can also harm your credit score by increasing your credit utilization ratio. This is the percentage of your available credit that you’re using, and it’s one of the key factors that lenders look at when determining your creditworthiness. By taking out a cash advance, you’re effectively using more of your available credit, which can hurt your score. So, if you’re thinking about taking out a cash advance, it’s important to weigh the potential risks and rewards carefully.
Paying for things you can’t afford
Only use your credit card for things you can afford to pay off in full each month. This way, you won’t have to pay any interest on your purchases.
If you can’t afford to pay off your credit card balance in full each month, you’re probably better off using a different form of payment.
If you don’t have the money to pay for something outright, then you probably can’t afford it. By only making the minimum payments on your credit card, you’re paying way more for whatever you purchased than you would have if you had just saved up and paid cash. Not only that, but you’re also incurring late fees, which will add even more to the cost of your purchase.
If you’re struggling to get out of credit card debt, there are a few things you can do. You can transfer your balance to a 0% APR credit card, which will allow you to avoid paying interest on your purchase for a promotional period. Or, you can work on increasing your income so that you can pay off your debt more quickly.
You can also get help by calling a debt relief company with expertise who knows exactly what to do to rebuild your credit.
Whatever you do, just make sure you’re not paying any more than you have to. You can get through this and get out the other side to financial freedom! By avoiding these costly mistakes, you can keep your debt under control and maintain a good credit score.
Erika Finn, founder of Stacking Acorns, is an attorney who graduated from law school at University of California, Berkeley. She was a member and editor of the California Law Review and won the Prosser Prize for Legal Accounting. She holds a Master’s Degree from the University of Southern California (USC) and a Bachelor’s degree from Indiana University- Bloomington. Stacking Acorns is a personal finance website for women by women. We help mid-life women achieve financial freedom through real estate investing and other streams of passive income.
