3 Biggest Credit Card Mistakes
- Credit card debt has reached over $930 billion dollars in the United States and will continue increasing every year.
- Credit cards play a major part in our lives as most of our largest purchases are made on credit.
- How you behave with your credit card can have a major impact on your financial success.
1. Carrying Balances
Credit card companies make it easy to repay your balance by allowing minimum payments. However, if you only make the minimum payment on your credit card, your balance will further increase due to the amount of interest that will continue accruing each month.
So, let's say you have a credit card with a $5,000 balance and an APR of 18%. If you were to make only the minimum payment on that card (around $125 per month)
It would take you almost 23 years to pay off your debt.
You'd pay almost $7,000 extra in interest!
Your $5,000 purchase would end up costing you close to $12,000 if you only made the minimum payment.
Now, what would happen if you were to pay an extra $100 per month to that same $5,000 balance? So instead of the $125 minimum payment, you paid $225 per month.
It would take you only about two years to fully pay it off.
You'd pay only about $1,100 in interest!
So don't just pay the minimum payment. Increasing your monthly credit card payment helps you pay off your balance sooner and at a lower cost.
Check out the link to the calculator I used for this example. See how much only making the minimum payment is costing you.
2. Paying Fees
The two most common fees are the annual fee and the late payment fee.
Annual fee is simply the yearly fee charged for holding a card. For most people it does not make sense to be paying money in order to use that company's credit card. Annual fees can be upwards of $100 or more and can eat into your budget.
So, check with your credit card company to make sure you're not paying an annual fee. Only those who are experienced with churning credit card rewards should consider paying credit card fees if the rewards outweigh the fee.
If you are paying an annual fee, call your card company and ask if they can waive the fee for you. If they say no, ask if they can switch you over to a no-fee card.
Late payment fee: If you pay late, you’ll incur a fee of $30 or more, which gets added to your balance. Paying late also wrecks your credit score which can drop up to 100 points from a single late payment. To minimize your chances of missing a payment, setup automatic payments in the amount that you can afford. Remember that paying more than the minimum is beneficial.
3. Ignoring Your Debt
Some people get so stressed out or embarrassed by credit card debt that they stop opening their bills and pretend there's no problem. There's no secret that is a bad plan because while you're ignoring the bills, interest is being accrued and added to the debt.
If you're one of these people, then please start right now by taking action to develop a plan of how you're going to tackle your credit card debt. Checkout this post that outlines a 5-step process for eliminating credit card debt.
*Disclaimer: I am not a financial advisor. The ideas presented in my articles and videos are for entertainment purposes and not to be taken as financial advice.