5 Costly Credit Card Mistakes
Let’s face it, there are certain situations in which you need a credit card. For example, at many places it is impossible to rent a car without a credit card. Booking a hotel, renting a car or buying an airline ticket online is virtually impossible without a credit card.
In other words, you need to have a Credit Card even if only for emergency situations. The problem is, simply having a credit card in your purse or wallet can lead to extremely costly mistakes unless you exercise constant restraint.
Here are the 5 costliest Credit Card Mistakes you can make, mistakes which can end up ruining your credit rating (making everything from cars to houses much more expensive for you in the future) and even driving you into bankruptcy:
1. Never, under any circumstances, make a credit card payment with another credit card.
In this way lies madness. And potential bankruptcy. If you get to the point where you don’t have the resources to make a credit card payment let your creditor know of your situation and how you plan to resolve it as soon as possible. I realize that this is usually the last thing you want to do, but if you inform your creditor that you are having problems before you start missing payments you will find that your creditor will be very accommodating and will almost always work with you to find a solution that you can both live with. Problems arise when you simply start missing payments without communicating about your problems ahead of time.
2. Do not buy consumer goods unless you have a definite time table for paying off the loan.
Most people use their credit cards to buy consumer goods without giving their purchases much thought whatsoever. And many of these same people end up deep in debt and in serious financial trouble that ends up haunting them for years to come.
Consumer goods are things like TVs, computers, camcorders, the latest stereo equipment, your favorite CD, etc., etc., etc.
These are things you just have to have, things you simply can’t live without – and things whose value drops to almost nothing the moment you pay for them.
We all want things. And credit cards make collecting things very, very easy. But unless you are prepared to make horrific interest payments for years and years to come, you need to plan ahead for exactly how you are going to pay off your consumer credit card purchases before you make them.
Know ahead of time just how much you can afford to set aside from each paycheck in order to pay for your purchase – and then stick to your plan. Pay off all consumer item debt as quickly as you can and never purchase any consumer item until you know precisely how you are going to pay for it and how long it is going to take.
3. Don’t make just the minimum payment.
Many people start charging things on their card and then suddenly realize that they actually have to pay for the items they purchased. And so they opt to make the minimum payment that they can on their credit card, thinking, I suppose, that they are somehow saving money by doing so.
Did you know that, depending on the exact terms of the card you’re using, it can take as long as 18 years to pay off a credit card bill if all you ever make is the minimum payment due? And that’s assuming you never make another purchase on the card during all of those 18 years!
In other words, if all you ever make is the minimum payment due on your card you will never pay off your debt. You will be giving the bank which issued your card a tremendous amount of interest while remaining in their debt for the rest of your life. Pretty good work if you can get it – if you’re a bank, that is!
4. Don’t collect credit cards.
You don’t need a pocket or purse full of credit cards. You only need one – and that one should be saved for emergencies or for situations where you can only pay with a credit card. As pointed out earlier, making consumer purchases with a credit card unless you have a clear plan for how and when you’ll pay the debt before you make the purchase is an almost sure way to eventually end up with ruined credit – or worse.
If you have several cards in your pocket the temptation to use one after another is just too great for most people, as is the temptation to start making credit card payments with the credit line from a second (or third or fourth) card.
Once you take your first step on that particular slippery slope there’s seldom any turning back.
5. The final mistake many credit card users make is in getting a card because of a great introductory rate but failing to check on the rate after the introductory period.
There are lots of cards out there with great introductory rates. In fact, it’s not too difficult to find cards with 0% interest for the first 6 or even 12 months that you have them. But ask yourself why would a bank offer a 0% introductory rate?
Banks are not known for their generosity. There’s really only one reason for a bank to offer you a 0% introductory rate and that is because once the introductory period is over the rate on their card changes to something horrific, something so high that you would never, even in your weakest moment, have even considered using that card.
Once the introductory period is over many bank cards revert to an interest rate of 20% or even more!
You can make introductory rates work for you rather than against you. All it requires is that you keep track of when each introductory rate ends and just before it does you need to find a new card with a low or 0% introductory rate and switch again.
If you continue switching to new 0% cards just before each introductory rate ends you can actually go for years without ever paying even a penny of interest on your credit cards, saving you a small fortune.
But even if you are paying no interest it is still imperative that you try to keep consumer purchases to a minimum and that you know ahead of time exactly how you are going to pay each credit card debt before you whip out your plastic and say “Charge it, please!”
Tags: Airline Ticket, Bankruptcy, Car Rental, Costliest Credit Card Mistakes, Credit Card, Credit Card Mistakes, Credit Card Payment, Hotel, Introductory Rate, Minimum Payment, Paying off the Loan, Ruining Your Credit Rating