Cash News
Credit cards certainly have their benefits: They’re convenient, safer than cash, and users can earn valuable rewards. With all of those perks, it’s no wonder that credit cards have become so popular. On average, people have four credit cards in their names, according to .
Despite how prevalent credit cards are, it’s not always easy to use them wisely. If you commit these seven common credit card mistakes, you could lose money or damage your credit.
1. You pay only the minimum
When you receive your credit card bill, it will list a that you have to submit by the statement due date. That is the amount required to keep your account in good standing, but you may be shocked by how little the minimum payment reduces your balance — and how much interest accrues over time.
On average, credit card users have a balance of $6,500 on their cards, and credit cards usually have an annual percentage rate () of approximately 23%. Your minimum payment is usually 3% of your balance, or $195. If you only paid that amount, it would take you 54 months to pay off the balance, and you’d pay over $3,900 in interest charges.
By only making the minimum payment, it can take years to repay your debt, and you can end up paying thousands more than you originally charged in interest.
What to do instead
Ideally, you’d pay off your statement balance in full by the payment due date. If you do, no interest will accrue, and you’ll avoid costly credit card debt.
But that’s not always possible; if you have to carry a balance from month to month, aim to pay more than the minimum. If you pay as much as you can afford each month, you’ll be debt-free faster and reduce the amount of accrued interest.
2. You don’t make note of introductory offer details
Some credit cards offer special promotional APRs on purchases or , giving you 0% interest for a limited period. However, a common mistake is not paying attention to the fine print. An only applies to transactions completed within a certain timeframe; for example, it may only apply to balance transfers completed within the first 60 days of opening an account. After that, the regular APR applies.
Once the promotional APR expires, the regular APR applies to all transactions. That means your balance and interest charges can grow quickly if you don’t pay off the card in full by the end of the introductory rate.
What to do instead
Before applying for a new credit card, thoroughly review the card’s terms and conditions. Make a note of how much time you have to complete a balance transfer or purchase at the promotional APR, and when the rate expires.
Set up calendar reminders for yourself for when the APR expires, and make extra payments as needed so that the balance is paid in full before the end of the promotional APR.
3. You take out cash advances
Whether you’re in need of cash for an emergency or to repay a friend, a can seem like a convenient option. You can use your card to borrow against your credit limit and get cash. However, these transactions have higher APRs than regular credit card purchases, and you”ll also pay a cash advance fee that is usually 3% to 5% of the advance amount.
Between the fees and high rates, cash advances are a costly way to get money.
What to do instead
If possible, use your debit card to withdraw cash or a payment app like or Zelle to transfer cash to friends. Borrowing money with a may also offer lower interest rates and fewer fees. If you must take out a cash advance, pay it off as quickly as you can to reduce the amount of interest that builds.
4. You close an unused card
It can seem like a smart decision: You want to manage your debt and reduce temptation, so you . However, that choice can have long-lasting consequences — it reduces the amount of available credit you have and shortens the length of your credit history. Because of those issues, closing a credit card can cause damage to your credit score.
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What to do instead
If you’re trying to reduce your credit card spending, take your card out of your wallet and store it in a safe place in your home. That way, the card remains open, and you can use it in an emergency, but you don’t have the temptation of having a credit card on you. Keeping the account open ensures you have more available credit, which helps your credit.
If the card in question has an , see if the issuer can downgrade your card to a free version. That allows you to keep the account open while saving you money on a card you don’t use anymore.
5. You apply for cards solely for the welcome offers or rewards
There are lots of credit cards available, with attractive and sometimes lucrative offers. However, applying for multiple cards to take advantage of credit card welcome bonuses or can cause problems.
Applying for multiple cards in a relatively short time will result in more credit inquiries on your credit report, and the presence of . And with multiple new cards, you may rack up a higher credit card balance to meet the cards’ welcome offer requirements. If you can’t pay them off in full by the end of the billing cycle, costly interest charges will build.
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What to do instead
Rather than chase rewards or bonuses, only apply for new credit when you need it and intend to keep the account open for the long term. Limiting new credit inquiries benefits your credit score, and managing your credit responsibly ensures you don’t acquire unnecessary debt.
Also, consider how the card’s rewards and bonuses align with your normal monthly spending. If you have significantly changed your habits to meet a card’s minimum spending requirements, it could lead to unnecessary debt later.
6. You miss a payment
It may not seem like a big deal; you’re on vacation and miss your card’s due date, so you pay what you owe a few days late. However, even one late payment can cause substantial damage to your credit, and the late payment will stay on your credit report for seven years.
Worse, credit card companies can charge hefty late fees — as high as $40 per occurrence — and penalty APRs, a higher rate that applies to all transactions going forward.
What to do instead
Most credit card companies allow you to set up automatic payments for the minimum amount due or the total statement balance. By setting up autopay, you can avoid missed payments and late fees.
7. You don’t review your statements
Life can get busy, so it’s easy to toss your credit card statements in the trash without reviewing them. However, you could be missing out on critical information, like changes to your credit card terms and rates, and you might not catch .
What to do instead
Create a calendar reminder for yourself or get in the habit of reviewing your statement every month on the statement due date. Make sure you understand what rates apply, and review the list of transactions to see if you recognize all of them. If there are any you don’t recognize, dispute the charges with your credit card company and request a replacement card.
This article was edited by Alicia Hahn
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