Cautious Spending: Tips to Avoid Major Credit Card Pitfalls
Credit cards have a lot of pitfalls and can be potentially dangerous. This is especially true if you’re new to them. You may be thrilled by the whole idea of what looks like “free” cash. Yet, even an experienced user may still get ensnared by these pitfalls.
Being aware of the risks that credit cards pose is necessary if you’re considering getting one. This will also ensure you cultivate a spending habit that will not cause you to fall into these dangers.
But what are these pitfalls and how can you avoid them? Find out below!
1. Interest rates may make it difficult for you to pay the balance off
When you pay your credit card balance fully every month, you don’t have to pay any interest in that month. If you don’t, a part of your payment is calculated for interest payments. When this happens, the time you will take to pay the balance off will be increased. In this case, the money you have to pay may become too much for you to afford.
To avoid this, you have to ensure you pay the card’s balance fully in order to avoid paying interest. If paying in full isn’t possible, pay a big chunk of what you owe every month and eventually, you will bring the balance to zero.
2. You may be tempted to overspend
Studies have shown that people tend to spend a lot more when they shop with a credit card than they would have if they paid cash. A particular study recorded that the participants wanted to spend double the amount when they use their credit cards than when they used cash.
When you use “plastic” to pay, spending isn’t just convenient, but you don’t feel the “pain” that you normally would when your empty the cash in your wallet. This may also be the reason why credit card debts are on the rise in the United States.
One way to avoid this is to set a personal limit on how much you spend; this can be even lower than the credit limit. Your personal limit should be based on the amount you can comfortably pay back monthly. Do not overspend with that little plastic to sustain a lifestyle that you simply can’t afford just to impress others.
3. You can start to feel secure because of the minimum payments
To keep a credit card account in fair standing, you simply need to make little payments monthly. We hate to be the ones to break it to you but do you know what is worst next to not paying your credit cards bills at all? Making minimum payments!
Since you do not necessarily have to pay all you owe, you may begin to feel secured while your debts keep increasing. When this happens, you spend way more time paying off your balance. You will also keep paying more interest.
The best thing to do is to pay off the full balance. But, if for some reason this isn’t possible, then ensure you pay above the minimum. This will help you pay off your balance quickly and also reduce the overall interest you have to pay.
4. You may get confused by the terms and offers
The Credit Card Act of 2009 made the terms of credit cards clearer. You can visit here to learn more about this Act. Despite this, you can still get confused by the offers and terms of some cards. One card may have many interest rates for which you can get confused about in regards to which one applies to what.
This can spell some serious consequences for you such as high-interest rates, increased fees, and can even damage your credit.
The only way to avoid this is to be very attentive to the terms. Get a proper understanding of the balance types your card can carry and which interest rate applies to which balance. Take out time to read the rewards programs, and learn the purchases that get you rewards. If you have questions about any aspect of your card, do not hesitate to contact customer service.
5. Keeping track of one’s spending becomes harder
The building block for a good financial life is being able to keep track of one’s spending. But this may become tedious and difficult when you use credit cards as your major payment method. This is especially truer for those who use more than one credit card. Remember, we already said using a credit card may tempt you to overspend, and not being able to keep track of your spending is a major reason for that.
Be deliberate about tracking your spending. You need to look at several places when you do this, it may be stressful but it is not impossible. You can choose to keep track manually by keeping a spending spreadsheet or journal, or you can use a finance app like Quicken or Mint.
6. Danger of getting indebted
Most of what we’ve been saying so far has been building up to this point. When you borrow money (which is what you do when you use a credit card), you create debt. When you keep borrowing without paying it back, your chances of getting indebted goes up as well.
You may keep using your tiny little plastic to get your problems out of the way, only to wake up one morning and realize that you’re neck-deep in debt. Debts create so many other problems, most of which aren’t financial, from depression to stress, as well as several other health problems, all of which may have extreme impacts on your life.
Debt makes it harder, if not impossible, for people to achieve their financial goals. When you have to spend your money paying back debts, you end up not having money for other important things like a vacation, or saving for your retirement. Other things in your life like education may have to be placed on hold too.
You may even feel trapped in that job you hate just so you can pay off the debts and your bills. We can keep listing out the various issues that can stem from a person being indebted, because the list is almost endless.
So how can we avoid this pitfall as best we can? If you already use a credit card, you’d know that you’re heading towards this pitfall if you can’t pay off your monthly balance fully. If this is the case, we advise you not to use your credit card for some time. Try to live based on what you earn, and gradually pay back what you already owe.
Once you get the debt paid, you can start using your card again. This time, make sure you don’t use your kredittkord irresponsibly. If you got your card recently, avoid falling into this danger by following the tips suggested.
7. User’s credit score can be ruined
The way a credit card is used has a direct impact on its user’s credit score. When used wisely, they can help build a person’s score and vice versa.
For instance, if the user misses their payment for up to 30 days or more, their credit score would take a big dip. The bigger the mess, the bigger the dip in the score.
To avoid this, you simply need to make your payments on time as well as ensuring your balance is lower than 30% of the credit limit.
Credit cards are very convenient means of making payments. But if you aren’t careful, you may fall into several dangers that may prove be very difficult to overcome. These dangers are avoidable if good spending habits are cultivated and observed.
