Credit cards are a great way to make payments and get rewards, but they can also be dangerous if you’re not careful. Here are some of the most common mistakes that people make when using their credit cards and how to avoid them:
Ignoring the Card Expiry Date
A credit Card is valid for a specific period. Once the card validity expires, you must ask your bank or lender to issue a new credit card. But when you use multiple cards at a time, the card expiration date might skip from your attention. Many people wonder, do credit cards expire at the end of the month, but they are mistaken.
Each bank offers a different card validity period. According to SoFi, “your credit card will remain valid until the last day of the month it expires. It will no longer be valid on the first day of the following month.” So, see the month and year on your card, and be prepared to renew it when required.
Missing Payments of Credit Card Bills
The first mistake is missing payments of credit card bills. You can always contact the credit card company, explain what happened and ask for an extension on your next due date. The credit card company will most likely allow this since they want to keep their customers happy and avoid losing them as clients.
However, suppose you miss more than one payment. In that case, the situation becomes more serious, and you may be charged late fees or penalty rates, increasing your monthly bill significantly over time. This could result in an unmanageable debt where it is impossible to pay off all of your outstanding debts within a reasonable timeframe (say within five years).
Only Paying the Minimum Amount Due
The minimum payment on your credit card is the amount of money you need to pay each month to avoid paying late fees or having your interest rate rise. The minimum payment can be as low as 2% of the balance, which means that if you owed $1,000 on a credit card and only paid 2% of it each month, it would take you over five years to pay off that debt. However, if you’re only paying the minimum amount due each month, chances are your balance will still grow because of all those extra dollars going towards interest instead of principal.
Taking Cash Advances and Spending on Unnecessary Things
- “Cash advances,” also known as cash-advance checks, are usually charged at a higher interest rate than regular purchases.
- In addition to charging you more on what you already owe, you will also have to pay interest on the cash advance itself. Some credit cards don’t allow users to take out cash advances.
Not Maintaining Credit Utilization Ratio
It’s essential to make sure your credit utilization ratio is low. A high ratio means that you are using a lot of the available credit on your cards, whereas a low ratio means that you use less than 30% of the available credit on your cards. The higher this number is, the more likely it will affect your ability to qualify for other loans, including mortgages and auto loans, in the future. To avoid this scenario and maintain good financial health, keep tabs on how much debt you carry at any given time by reviewing your monthly statements.
Do your best to avoid these credit card mistakes; they will not affect your credit score. However, suppose you are struggling with debt. In that case, you must seek help from a financial professional who can guide you on how much money is appropriate for each bill payment category and assist with repayment plans.