Having a credit card is a privilege, not a right, but it is amazing how many people fail to learn about their credit cards and how to use them properly. As a result, many people make silly mistakes with their credit cards that end up costing them a lot of money. Some of these mistakes also ruin your credit score, making it harder for you to obtain additional credit like home and car loans, qualify for certain items like bank accounts and rental agreements, and may even result in you being disqualified for a promotion. Here are some common silly mistakes to avoid making with your credit card.
Only Paying The Minimum Payment
Many people only pay the minimum payment for their credit card because that is all that they are required to pay. They do not realize that this will mean that they will be paying on the credit card for years without making a dent in the balance owed. According to federal law, the minimum payment for a credit card is just enough to cover the interest owed for the month plus 1% or 2% of the balance. Now, credit card companies are required to disclose on the credit card statement the length of time that it will take you to pay off the balance if you only make the minimum payment each month. The many years required should shock you into trying to pay off the balance more quickly.
Taking Cash Advances
Another silly thing that many people do with their credit cards is use them to take cash advances out of ATMs. The interest rate for these cash advances is astronomical, often more than 10% higher than the interest rate charged for purchases. It is one of the most expensive ways to borrow money, almost as bad as taking out a payday loan. If you need additional cash in a hurry, cheaper ways would be to take out a personal loan, sell some items that you do not need, or borrow money from a family member.
Signing Up For Store Credit Cards
There is really no good reason to sign up for a store credit card. These cards are offered solely to get you to spend more money at a particular retailer and pay interest to the company for your purchases. Sales associates are offered incentives to get you to sign up for the cards because the company knows that there is a good chance that they can make a lot of money off of you if you do sign up. The interest rates for these cards are often higher than the interest rate that you would pay for a bank-branded or credit company issued credit card.
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