While credit cards can be a useful and necessary tool for getting what you want in the United States, they are also the bane of many peoples’ financial success and failure. There are many pitfalls that you need to look for, but if you are not informed how do you know what to look for? Read on, and you will learn the top 10 mistakes most people make:
1. They overdo it
There is almost no reason for you to apply for another credit card. Most people already have enough, or more than enough credit for themselves and their family. In fact, Cate Williams, the Vice President of Financial Literacy for Money Management International in Chicago says “95 percent of us don’t need another one to keep in the sock drawer or in the little metal box in the kitchen.” While this is very quaint, it is indeed true. Most of your cards end up never being used.
2. They misunderstand introductory rates
While balance transfer rates promise cheap debt consolidation, most people don’t look at the other rates on the credit card or the fact that the low rate being offered is variable and will eventually adjust. This doesn’t mean that you should avoid cards with this option, but you need to have a plan of attack if you do. Use balance transfer cards properly and you can indeed reduce your credit down to nothing. Use them improperly, however, and you won’t even know what hit you.
3. They don’t read the fine print
You would think that this is obvious, but it is not. If you want to know how long your rate is supposed to last, it’s in here. If you want to know what it’s going to be later, it’s in here.
4. They apply for the wrong reasons
Is there a “right” reason to take out credit? Yes. Is there a “wrong” reason? No, there are many wrong reasons. Do not be attracted by the promises of low rates that get you thinking about all the things that you could buy. If you didn’t need it yesterday, you don’t need it tomorrow. Wait till you have the money or until you have paid down your current card first. However, there is nothing wrong with applying for a new card when you truly know what you want. Some cards have unique bonuses that could greatly benefit you.
5. They don’t shop around
If you do need a credit card, and many people do, it is important to shop around for the best rates. Just because you find something appealing today doesn’t mean that you won’t find a better one tomorrow.
6. The only make minimum payments
“Credit cards are not a form of supplemental income. They are for convenience, and should be paid off at the end of every month.” Whether or not you agree with Howard S. Dvorkin, Founder and President of the nonprofit debt management company Consolidated Credit Counseling Services, he’s right.
Daniel Wishnatsky, certified Financial Planner and Owner of Special Kids Financial in Phoenix, AZ says, “you’re going to be paying it for your next three lifetimes.”
7. They make late payments
Unfortunately, making late payments is not much better than missing a payment altogether. Anytime you violate your contract, it negatively affects your credit score and shows up on your credit report. This can affect your ability to get better loans later in life. Ironically, this is also the easiest problem that you can avoid, if you simply check your statements for the due date.
8. They ignore their statement
Not only does this ensure that you make your payments on time, but it can also ensure that you are in control of your credit. It helps you to know what your balance and there are no questionable charges, which could be evidence of ID theft.
9. They go over the limit
This should be obvious, but it still happens a lot. Going over your limit can be just as detrimental as missing a payment. You will get fees galore and have a very hard time getting back on track.
10. They buy what they don’t need
Most people who get into trouble with credit cards did so because they used their cards when they really didn’t need to. Either you truly don’t need half of the things that you bought or you could possibly be a compulsive spender.
My dad has been writing a book exactly on point with this blog post regarding credit cards! I have emailed him the web address so perhaps he could pick up a couple pointers. Excellent Job! Thank you!