A credit card can be a good financial instrument for managing your finances if it is used properly, but many of the people that accumulate massive amounts of debt do so by using credit cards irresponsibly. It is not that these people intend to get themselves into financial trouble, but the features of a credit card make it easy to overspend and difficult to pay off the debt. It is much easier to avoid the credit card pitfalls that lead to excessive credit card debt than to try to repair the damage to your credit rating and your finances afterwards. Here are some common credit card pitfalls to avoid if you do not want to wreck your credit rating.
Using Your Credit Card To Buy Unnecessary Items
Many people make the mistake of treating their credit card balance like it is extra money in the bank and use their credit cards to purchase things that they cannot really afford. This happens quite often with store branded credit cards as people rack up purchases of unnecessary items to earn rewards or use store discounts. If you cannot pay off these balances quickly, they will cause your credit score to drop and eat up an increasing amount of your income with interest payments on the debt.
Instead of using the credit card to purchase any item that catches your eye, ask yourself whether you really need the item and whether the item is so important that you are willing to pay more for it my placing it on your credit card. If the answer to both questions is no, leave that merchandise on the shelf and save your credit card balance to be used in true financial emergencies.
Trying To Take Advantage Of A Program You Don’t Understand
Credit card companies are geniuses at coming up with new programs and card features to entice more people into signing up for their credit cards. However, many of these advertised programs and features come with hidden catches that could cost you a lot of money if you do not understand that they are there. For example, many balance transfer and 0 percent interest on purchases offers are only valid for a few months, and if you do not pay off the balance within this time period, you could be hit with retroactive interest charges from the date of the opening of the account.
It is usually not a good idea to open up a new credit card just for the advertised promotion, but if you do choose to, it is best to have a plan in place for using the credit card before you even receive it. If you are transferring a balance to take advantage of a lower interest rate, make sure you can pay off the amount of the transfer well before the promotional period expires. If you are opening the credit card to make a large purchase with a 0 percent interest rate offer, pay it off as quickly as you can to ensure that you will not be paying interest on the purchase.