Here are the most common ones.
Sticking to the Minimum
The minimum payment is settled for a credit card as a percentage (e.g. 4%) or a particular amount of money (e.g. £10). The figures seem comfortable, even affordable, but only at first sight. Go deeper, and you’ll realise: it will bring just temporary relief. By making the minimum monthly commitment, it will take a lifetime to repay a loan. Additionally, the interest piles up at an incredible rate. Imagine that your credit card balance is £6,000. With a minimum payment of 3% made every month and an APR of 15%, you’ll cover the debt in 156 months and pay about £3,940 in interest. That’s quite an impressive figure!
Collecting Credit Cards
Even having three credit cards is usually not a big problem, provided you can manage them properly. If you are aware that you can’t, then don’t sign up for another one. The more credit cards you have, the higher the chances are that you will lose track of them. Missed payment deadlines and annual fees adding up are side effects. Remember that a credit card is not a source of income. This is a loan that you are committed to paying at some point.
Those tempting rewards
‘Get £1.50 worth of points for each £100 spent’. Doesn’t it seem attractive? Clients are lured by cashbackand rewards in different forms, like cash, points or miles. Credit card providers offer them nice perks for using their plastic products. However, it’s so easy to be misled. In fact, they just encourage you to use their services, and if you’ve already joined them, to spend more than you normally would. Be aware of the interest you pay on each pound charged. It will definitely exceed the bonuses you receive for using a credit card.
‘Plastic’ Everyday Purchases
You’re making a great mistake by doing regular shopping with a credit card. If you let yourself buy food in debt, then you’re likely to end up with a lot of unnecessary stuff. Revise your credit card bills, and you’ll be very surprised at the number of impulse waste-of-money buys. While you can purchase something significant using plastic, it’s advisable to keep day-to-day spending within your monthly income.
Putting off Payments
If you miss a credit card payment, you’ll have to make two minimum payments plus a late fee the following month. But there’s more than extra charges. Tardiness hurts your credit score, about 35% of which depends on timely debt payoffs. Insurance companies determine rates and creditors consider granting a loan based on a credit score. This is one good reason to maintain a healthy credit karma, isn’t it?
Credit cards can be helpful, but they can also lead you into a financial ditch. Self-control and common sense will help you make the best of them. Treat ‘plastic’ lenders properly, and they’ll return the favour and treat you the same way.