25 Nov 2019
#FinancialBytes: Credit card sins to avoid at any cost
Credit cards are one of the widely-used cashless payment methods because of the convenience they offer.
Today, people use credit cards for almost everything. However, it is essential to use credit cards wisely; spending carelessly might push cardholders into a debt trap. If not handled well, credit cards can become a huge burden.
Here's a list of credit card sins one must avoid.
Failing to pay the credit card bill on time
Failing to pay the monthly credit card bill before the due date and defaulting on the payment are two of the biggest seemingly harmless credit card sins cardholders must avoid.
Doing so might reduce their credit score, decreasing their chances of approval for bigger loans.
Also, instead of paying only the minimum amount due, one must clear as much outstanding amount as possible.
Avoid overspending, do not exceed credit limit
With credit cards, some people, especially those with bad spending habits, might get into financial trouble as they tend to overspend. Some might spend too much simply to earn more rewards.
However, this a huge credit card mistake to avoid. One must not exceed their credit limit as high usage of the limit results in high credit utilization ratio that impacts the credit score.
Having too many credit cards is a mistake
Credit cards are very useful and can come in handy in emergencies but having too many credit cards can be risky.
Having more credit cards means more expenditure and higher debt. The annual/renewal charges for each card also increase the expenditure.
Credit cards can boost one's credit score, but maintaining too many cards could be a hassle that can decrease the credit score.
#4: Paying credit card bills without checking monthly statement
Generally, cardholders tend to blindly pay their credit card bill, ignoring their monthly statement. However, one must avoid doing this and check the monthly statements to ensure they aren't wrongly charged for something. They should check for any errors/inaccuracies.
Withdrawing cash using credit cards is another mistake to avoid
Cardholders must also avoid using credits card for withdrawing cash from ATMs. Cash withdrawals through credit cards are treated as "cash advances" - like short-term loans - by credit card issuers.
Cash withdrawals can attract high-interest rates and banks also charge a percentage of the amount withdrawn as transaction fees.
One should use their debit cards for cash withdrawals instead of credit cards.