Common Credit Card Mistakes Credit cards can be wonderful things. Used properly they can really help you deal with some of the stresses of frantic modern life. But used carelessly or out of ignorance they can become like the friendly family dog that suddenly turns and snaps back. And it can really hurt.
Here’s a few pointers that may help you stay out of harms way.
Crisis what crisis?
Debt is something that happens to other people not to you… It’s remarkably easy to get into debt with our current credit card system.
With a reasonable credit rating you could notch up £30,000 worth of debt without really thinking about it. How you pay it back would then require quite a lot of thinking about.
Temptation
When you take out a credit card assume that you will be tempted to use it to its credit limit. Consider how much credit you really need. If the card you have received gives you more than this figure contact the lender and get them to reduce the limit to the figure you have calculated.
Out of control
People often add supplemental card holders to their credit cards…But that can cause real problems. When the main card holder receives their monthly statement (assuming they read it) how many of the charges on that card will be from the supplemental account holder? Will they see purchase after purchase made by their partner that they weren’t even aware of? Losing control of your outgoings in this way is not a recipe for good financial housekeeping.
Tide me over
When you next need a bit of cash when you’re coming to the end of a month and your pay cheques not due for another week, do you ever use your credit card for cash?
If you do it’ll be costing you a fortune. Cash withdrawals are charged at a higher APR than retail purchases and the interest kicks in from day one. Not only that, but there is often an individual fee to pay too. Don’t use your credit card for cash – its plastic: don’t try to get metal or paper from it.
Minimum payment
It’s good of the credit card company to put a minimum payment figure on the statement isn’t it? No, not really. It’s there to encourage you to only pay that figure, not the full amount. “Go on”, it’s saying “leave some of that huge sum on there, you won’t even know it’s there.” Don’t be tempted. Whenever you can, pay off the full sum. Read the article "Credit Card Minimum Payments – The True Cost OF Living On The “Never Never”" for more on minimum payments.
Nobody expects the unexpected
Unexpected emergencies happen, but not often. That’s why they’re called “unexpected”. But if you are forced to use your card unexpectedly try to repay much more than the minimum payment to reduce your balance. Minimum payments are usually around 5% of the balance. If you only pay the minimum it will take a long, long time to pay off the full amount.
Original sin
One of the biggest sins of credit card management is exceeding your credit limit. You will get penalised with penalty fines. If it’s a genuine accident you should talk to the credit card company and see if they will waiver some of the fines. Sometimes they will, sometimes they won’t.
The same applies to late payments. If you sometimes find yourself paying late, because you forgot when the due date was, set up a direct debit from your bank account well in advance to take care of it. Make sure you pay on time every month, otherwise you can wave goodbye to your credit rating.
Abroad with your card
Being able to use the credit card abroad is one of its advantages. But you need to check to see how much the company will charge you for doing so. There is likely to be an administration charge for foreign currency transactions as well as a percentage fee of the amount withdrawn, if you are using it for cash; much better to take travellers cheques.
Time of the month
Statements are issued because sometimes the credit card companies make mistakes but mainly because they enable you to keep a track of your finances. If you have a pile of unopened statements beside your front door how will you know what state your credit card finances are in? These days its easier to track your account online so you can be in constant touch with our expenditure as the weeks pass.
Once you have checked your monthly statement keep them all together somewhere safe.
Make your statement A load of rubbish
If you insist on getting rid of your statement once you’ve read and analysed it then shred it - don’t just throw it away as that leaves you open to the potential threat of identity theft.
Answer me this
And finally, if you are one of those people who like to play things safe and are congratulating yourself on having got to the bottom of this cautionary list without being found lacking, answer this: have you taken out the card insurance provided by the credit card company?
If you have, then you should try shopping around near its renewal date, as there are plenty of specialist companies that offer greater protection for similar features and are much cheaper.
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