The past years have showed us that most of us are still not making the best financial decisions and, given the huge amount of credit card debt, we’re clearly making a lot of credit card mistakes that cost us.
In the personal finance blogosphere there are many stories of people who are currently struggling with a lot of debt and a pretty big chunk of it comes from misusing their credit cards (or just being duped by the ‘small print’ and the ‘fear of missing out’ – rewards come to mind).
So, what are the biggest credit card mistakes we can make (or have made)?
1. Getting a credit card ‘just because everybody has one’
If you are living in a ‘civilized‘ country, most of your friends and relatives have at least one credit card. Are you content with your debit card and wouldn’t accept anything but a zero overdraft on your account? You’re not cool, my friend. Even in my country, where credit cards are not being used so much, we still get people to roll their eyes because of how ‘uncool‘ we are.
Don’t make any financial decisions based on what your friends are thinking about you (unless they’re all personal finance gurus and teach you great things ;)).
2. Getting a credit card for the rewards (fear of missing out)
Yes, there are people who have traveled the world or purchased some very cool items with their rewards. They are not many though and a lot of the people who are using their credit cards get into huge debt, just because they lack the discipline to properly manage them and the insane interest some of them have, if you make the slightest ‘mistake‘.
If you are not sure you’ll be able to make ALL the payments exactly as you’d need to in order to avoid the huge interest and fees, SAVE money yourself and leave the rewards to someone else. No bank is preparing the plan for you to get as many rewards as possible, they ‘bet’ on you making a mistake and being charged through your nose.
In my family, we have only debit cards and zero overdraft. Sure, we’re missing out a lot of opportunities (at least that’s how some would say), but we’re not risking anything. By not paying 30% or more in interest, we’re saving money our own way and can travel or purchase the items we’d love to.
Again, if you can ‘play’ the rewards game, good for you, if you have the slightest worry that you won’t be able to keep it up, you’ll never see any rewards, but a lot of time spent paying off your credit card debt.
3. Not reading ‘the fine print’
Me and hubs had a great time joking about a new payday loan system in my country. Let’s say they are so ‘nice’ they approve you IMMEDIATELY, you have to pay weekly (so it’s ‘easier’ on you) and they even come to your home with the money, so no more standing in line waiting to get the cash. Wow, this is great, sign me up for 5 of these
I am afraid there’s no happy end to this story though: you’ll end up paying almost TWICE the amount you borrowed. So, how does 100% interest sound?
Of course, you need to read the fine print. You need to make all kinds of calculations and open your eyes. If not, you’ll open your wallet for a loooong time.
4. Not looking for the best rates
When you get a credit card, this should be done carefully. Do some serious shopping around, compare rates, study the fine print, choose only the best option.
This way you won’t end up in a disastrous situation, but will get a credit card that won’t ruin your financially for the next decade.
5. Getting too many credit cards
I know there are wallets who can carry tens of credit cards, I know people who can fill them easily. Getting too many credit cards is a huge mistake, especially if you cannot be very disciplined with paying them off. This is a recipe for disaster, you’ll end up nose deep in credit card debt and it will take a lot of time and pain to solve your money issues.
6. Making only the minimum payments
Credit cards are clearly a dangerous thing, when not being used correctly. If you’re not paying off the balance each month, you’re gonna pay the minimum for a long time, not to mention you might get the ‘chance’ to pay those nice double digit interest rates, which will erase any rewards value and throw you deep into debt.
7. Paying your credit card bill late
Even worse than focusing solely on the minimum is to pay your credit cards late. Not only will this mean more money you lose on various fees, but this will show on your credit report and damage your FICO score. If you got a credit card just so that you can get a credit score, you’re really damaging any chance of getting a decent loan in the future.
So, always pay attention to the exact date you need to make the payments and don’t be late.
8. Not checking your monthly statements
Sure, you think nobody should make a mistake, we’re in 2014 and the banks have YEARS of experience, right? Wrong! Always check your monthly statement. This can reveal possible mistakes, overcharges from your bank, even ID theft attempts.
We actually had such an instance when my husband had an unusual charge from Las Vegas, when we were actually in Spain. He disputed it and it was all cleared. Sure, it was around 3 bucks, but still, anything that’s not normal, shouldn’t be left there. Maybe the next charge would have emptied his bank account, if the perpetrator noticed the payment was successful and undisputed.
9. Exceeding the credit limit
Credit cards should be used wisely, one of the most costly credit card mistakes is to consider this ‘free’ money. Well, it’s not. You will pay for every mistake and going over your credit limit will cost you. Not only will it make you look silly when your credit card is not accepted for a payment, but you’ll also pay over-the-limit fees.
A bit of discipline and regular monthly statement checking can help you avoid this issue.
10. Getting a credit card to solve your debt issues
In very few instances getting a new credit card to pay off your existing consumer debt works out. And the reason is that you haven’t actually tackled the big issue you have: YOU OVERSPEND.
So, once you are seeing yourself getting in trouble, STOP and don’t dig yourself deeper. You will need to get your spending in check, create a spending journal (so that you can see for 2-3 weeks at least how your spending habits look) and start budgeting drastically.
Only this way, by cutting down any unneeded expenses and being very careful with your spending, you’ll be able to pay off your debt and get back to a ‘healthier’ financial status.
11. Using the credit card to buy all kinds of useless crap
Most people in the civilized world OVERSPEND. Some of us do or did in the past. As mentioned before, this is not ‘free’ money, you need to pay your credit card bills every month and possibly some fees (if you made any other credit card mistakes).
Check your monthly statement and see what you’re spending on. Is there anything you can stop purchasing or any ways to optimize your budget? This will free up money for paying off debt faster or allow you to save more.
12. Using your credit card to pay for every-day items
Sure, if you are VERY disciplined and never miss a payment (or make it too late), you can use your credit cards for every purchase. But, if you fear there’s even a chance to get anything messed up, use cash for the groceries and the credit cards for some more important purchases. Carrying cash might help you more when it comes to refrain from useless purchases, since you can see your money ‘go’ and it clearly keeps you away from mindless credit card spending.
13. Not knowing your interest rate
No, we’re not talking about the introductory rate you’re being offered at first, but the interest rate you are paying once the ‘honeymoon’ is over. A lot of people make this mistake and then are shocked to see how much they have to pay to clear off their credit card debt. Always shop around carefully and read the fine print!