Many employees and businesspeople use credit cards these days. With special discounts and rewards, credit cards have become the preferred payment method.
However, many people make credit card mistakes, which can lead to financial problems. Learn about credit card users’ common mistakes and how to avoid them.
Everyday purchases: Most people use their credit cards for almost everything, which is meant to be convenient. However, this can lead to increased costs.
Since the money is not deducted from your account immediately, losing track of your spending is easy, potentially leading to overspending over time. Cash or a debit card for small, everyday purchases is a better option.
Cash withdrawals: When they urgently need cash and there is no money in their bank account, many people withdraw cash from their credit cards.
While this may meet immediate needs, it comes with high interest rates and withdrawal charges. Instead of withdrawing cash, consider borrowing money from a friend or relative.
Cancellation of old cards: Some people cancel their old ones after getting a new credit card. However, closing an old credit card can lower your overall credit limit and increase your credit utilization ratio, negatively impacting your credit score. It’s best to keep the old credit card open, even if you use it less frequently.
Unnecessary purchases: Some people use credit cards even when they need more money to pay the bill. This can lead to accumulating huge debts. Avoid making unnecessary purchases with a credit card, especially when funds are low.
Payment alerts: To avoid missing payment deadlines, set up bank alerts regarding upcoming payments, spending limits, and bill due dates. This will help you manage your credit card properly and avoid late fees.
Balance transfer: While credit card companies offer a balance transfer option where one credit card bill can be paid with another card, it may come with additional interest and fees. Before opting for a balance transfer, ensure you have a clear repayment plan to avoid adding to your financial burden.
Heavy spending before applying for a loan: Lenders review your credit history and current credit usage when you apply for a loan. Heavy credit card usage can make getting approved for a loan harder. Before applying for a loan, avoid excessive credit card transactions.
Medical bill payment: Using credit cards to pay medical bills can lead to high credit card debt if the bills are not paid on time. Consider getting health insurance to cover medical expenses and protect against unnecessary debt.