3 Costly Credit Card Mistakes You’re Probably Making
Credit cards can be a powerful tool for building your credit and paying for expenses, but only if you use them responsibly. When used incorrectly, credit cards can destroy your financial health, your credit profile and your overall quality of life. To avoid the devastating consequences of credit card irresponsibility, it is important that you are familiar with the top three credit card mistakes, as well as ways you can avoid making them.
Mistake #1: Paying Only the Monthly Minimum
Sure, by paying only the minimum amount each month, you can avoid accruing late fees and
causing damage to your credit score. However, know that credit card companies love users like you, as their real bread and butter lies in interest.
For every month outside of the 0% introductory period that you carry a balance, the credit card issuer charges you interest. The average interest rate on a credit card is 18.61%, though some cards come with APRs as high as 36%. Though the interest may seem minor on a month-to-month basis, it can quickly add up. To show you how, we’ve provided an example.
Say you carry a $1,000 balance on a card with an APR of 18.61%. You make the minimum
payment of $25 each month. If you continue to only make the minimum payment, it will take you five years to pay off the balance, and you will pay a grand total of $527 in interest.
On the other hand, if you up that payment to $100 a month, you can pay off the balance in less than a year. You will also only pay $95 in interest, saving you more than $400.
Paying more than the monthly minimum doesn’t just make good financial sense. Doing so also reduces your risk of falling into a costly debt cycle and gives you financial peace of mind.
Mistake #2: Making Late Payments
Late payments hurt you in two ways: 1) They cost you in late fees and interest, and 2) they hurt your credit score. If you fall more than 30 days behind, your credit score may fall by between 17 and 83 points. The accrued fees can also make it difficult for you to catch up. If you have trouble remembering your due dates, set up automatic payments of the minimum monthly amount. This, at the very least, can keep you from missing payments.
Mistake #3: Not Familiarizing Yourself With Credit Card Benefits or Rewards
Most credit cards offer one or several types of benefits and rewards to users. For instance,
Discover it® Student Cash Back grants a $20 statement credit to student users who earn a 3.0 GPA each semester. Chase Freedom Unlimited® offers a $200 bonus for users who charge $500 in purchases within the first three months of opening an account.
If you make $4,000 in purchases within the first four months of opening a Chase Sapphire Preferred® Card account, you can get 60,000 reward points, which is equivalent to $750 toward travel. By familiarizing yourself with all possible rewards and benefits, you can make the most out of your credit cards and save in several areas of your life.
It takes most people years, if not an entire lifetime, to learn the ins and outs of responsible credit card usage. You can get ahead of the game by familiarizing yourself with common credit card mistakes and steps to avoid them today.