Credit cards are a great tool for managing your finances and providing financial flexibility, but they can quickly become a source of unwanted debt if used unwisely. Here are five common mistakes that can lead to massive debt and how to avoid them.
Not Paying Off Your Balance in Full Each Month
One prevalent oversight is failing to fully settle the balance each month, which can accrue interest charges and penalties that accumulate quickly, pushing you deeper into debt. To evade this error, make sure you pay off your entire balance every month without fail. If you can’t pay it off in full, try to at least make the minimum payment so you don’t have any late fees or penalties.
Having Too Many Credit Cards
Another mistake people make is having too many credit cards. Having multiple credit cards can be helpful for managing your finances and increasing your score, but it also increases the chances of accumulating large amounts of debt if you aren’t careful. To avoid this mistake, only have one or two at a time and make sure you aren’t using them more than necessary.
Not Sticking to Your Budget
It’s important to create and stick to a budget when using a credit card. Not doing so can easily lead to overspending and huge amounts of debt if you aren’t careful. To avoid this mistake, create a budget that accounts for all expenses including those such as interest rates or fees. Then stick to it! Don’t be tempted by offers or promotions beyond what you had planned for in your budget.
Payment Dates Are Missed/Late Fees Incurred
Sometimes life gets busy and we forget about our bills until it’s too late – especially when it comes to our credit cards. Missing payments can result in hefty late fees which will add up quickly if not taken care of right away. To avoid this mistake, set reminders on your phone or calendar for when payment dates are coming up so you won’t forget about them. An alternate option would be to establish a recurring payment system through your bank, this way payments will automatically be made from your account each month, however ensure that there are adequate funds in your account before the payments are due.
Avoid Cash Advances
Cash advances seem like a good option for those in need of extra cash. Before accepting a cash advance read all of the fine print. Some cash advances can run up to 30% APR. With such a high APR, cash advances do not make sense. Cash advances can quickly snowball a person into debt and monthly service fees they cannot payoff.