Don’t Make These 5 Credit Card Mistakes
Most Americans today are familiar with using credit cards and carrying credit card debt. In fact, the total amount of credit card debt in the United States is over $1.4trillion. This amount of debt is a pretty good indicator that many people are making some damaging mistakes with credit cards. While many credit card companies boast rewards points, extra protection plans, and other benefits, they do not focus on the other side of credit card use: high-interest debt. Carrying a significant amount of credit card debt can lower your credit score, cause stress and anxiety, and leave many families in a tough financial position. If you use credit cards or carry credit card debt, here are five common credit card mistakes to avoid:
Common Credit Card Mistakes to Avoid
1. Failing to Thoroughly Review Terms & Conditions
There are so many terms and conditions that accompany the use of a credit card. The most common condition that many credit card users overlook is a 0% Introductory Interest Rate. An introductory rate is a low-interest rate that entices you to apply for a loan or credit card. It is a temporary rate and will expire after a certain amount of time, typically 6-12 months. After the introductory period, the interest rate will go up to a normal, higher rate.
Many people get excited about getting a new credit card that boasts 0% interest for the first year. Credit card companies are hoping that you’ll see the 0% interest as an excuse to buy more and keep a higher balance on the card. It may be true that you will not incur interest for the first 12 months. However, if you have a balance remaining after 12 months, you can get hit with a hefty interest charge for the full balance. If you choose to sign up for a 0% interest rate credit card for a balance transfer, to purchase a big-ticket item, or just for general use, be sure that you can pay the balance in full before the introductory rate expires.
2. Missing Payments
Missing a bill payment is something many people have experienced. Whether you have missed several payments or simply forgot just once, you know the pain that comes with missing a payment. When it comes to missing a credit payment, the consequences can cause lasting damage. Interest charges and late fees can cause your balance to increase. This makes it harder to get ahead and get out of debt. This can lead to an unfortunate cycle of late payments, more fees, and of course, lower credit scores.
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3. Spending Beyond Your Means
About 20% of Americans rely on credit cards to pay for basic living expenses. While that may be necessary from time to time when you are dealing with an unexpected loss of income, it is a dangerous long-term strategy. Swiping your credit card with plans to pay for an item later doesn’t solve any problems, it only serves to push today’s problem to tomorrow. If you consistently buy things on your credit card that you do not have the income for, you may end up with large balances you simply cannot afford.
4. Making Minimum Payments
According to a survey by NerdWallet, the average credit card balance is over $7,000. Making the minimum payment on your credit card debt every month can add months or even years to getting out of credit card debt. The minimum payment is what you are required to pay in order to stay in good standing with your credit card company. But the minimum payment may lead to further interest charges and can cause you to rack up even more debt.
The best option is to pay off your balance in full each month. However, if you are unable to do so or if you already have balances on your cards, paying any amount above the minimum will help you pay off that debt faster and pay less in interest costs.
5. Not knowing the Applicable Fees
Can you list each of the fees your credit card company can charge you for? We’re all pretty familiar with interest charges and late fees. But what about annual fees, balance transfer fees, and cash advance fees? These fees are applied directly to your statement, and it is up to you to be aware of them before that happens. If you don’t pay careful attention, these fees can add up to hundreds of dollars per year, further increasing your debt.
How UmbrellaDEBT Can Help
At UmbrellaDEBT, we understand how difficult it can be to get out of credit card debt. If you are struggling to keep up with minimum payments, or have already fallen behind, our debt relief program may be able to help. Contact us to get started today.