Most people make common credit card mistakes that end up costing them a lot of money. Learn how to avoid these mistakes in this article.
If you are not using your credit card correctly and you are making basic credit card mistakes, you are simply handing over money to your card issuer for no reason. Every year banks make billions in credit card fees and penalties. You are only contributing to their profits by not using your credit card effectively.
It is important to use your credit card(s) as responsibly and carefully as you possibly can. And there are four costly credit card mistakes that you can avoid making right now.
1. Using your card to make cash withdrawals
When you make a cash advance on your credit card you are borrowing money, and this is the most expensive way of doing so, especially with rising interest rates. They are are four reasons why this is so costly.
- If the ATM that you use for the cash withdrawal is not one that is owned by your bank you will probably have to pay a fee to use the ATM.
- You will be charged a cash advance fee from the credit card company when you make a withdrawal using an ATM.
- Interest will start to accrue on the withdrawal amount as soon as you make the transaction. Very few credit cards offer interest-free days on cash advances.
- The cash withdrawal interest rate is usually much higher than the standard rate you are paying for purchases.
2. Not avoiding extra fees
Some credit card companies will charge administrative fees for many added options they try and sell you. This is on top of any annual fees you may have to pay after any introductory offers. Find out before hand if any charges will be added before making any changes to your card.
3. Not finding the best card
One of the worst credit card mistakes you can make is to choose the first card you see that looks like a good deal. You need to shop around for your card (see some options below).
There are so many credit cards being offered nowadays that it is vitally important to research your credit card before making a final decision on one. You may also find getting multiple credit cards, e.g. one for travel versus one for groceries, is a better bet than just sticking with one credit card.
It is often more convenient to take a credit card that your own bank is offering, but that is not always the right choice. You may end up paying a higher interest rate or not get the right rewards program simply because you did not look at what the other banks are offering.
4. Spending just for the rewards
If you are making purchases on your card in order to accumulate points that is fine, as long as you are able to pay off the balance at the end of the month. Some people get very excited about their rewards program and overspend. If the balance is not paid off at the end of the month it is not very cost efficient to make these purchases.
The amount you will have to pay in interest will probably be more than the value of the points you have accumulated. Credit card spending should be limited to what you can actually afford.
If you start avoiding these costly credit card mistakes you will end up paying less charges and fees, and really, you need this money much more than the bank does.