Owning a credit card is a prudent financial step in more ways than one. Nowadays, with credit card companies offering lucrative deals to clients, almost everyone is making a beeline to own a credit card of their own. But whether you are using a credit card for the very first time or are a seasoned credit card holder, there are certain things you definitely must NOT do when using a credit card.
People often make the mistake of carrying out the cliched practices they find on the internet and end up using their credit card in a manner that ends up putting more profit in the pockets of the credit card companies while landing the user in debt.
In this article, we have compiled a list of practices that every credit card user must avoid to ensure they can use their cards wisely and without landing themselves in any financial difficulty.
What not to do when using credit cards
Listed below are some significant steps you need to avoid when using a credit card. Pay heed to these, and you’ll find yourself smiling every time you see your credit card bills.
- Not paying the bills on time
The first and foremost practice to avoid when using a credit card is not to pay bills on time. Not paying bills on or before the due date does not just add on to your pile of debt but can also attract a penalty. Be aware of all your due dates for being bill payments so that you can pay off the bills and also keep your interest rate at a viable percentage. The more often you miss paying your bill on time, the higher interest rates you will attract, and the greater the amount you will end up spending in the long run.
- Carrying a zero balance at the end of the month
- Signing up for every credit card
One of the biggest mistakes people make when using credit cards is applying for any and every credit card out there. Often the decision to get another credit card is influenced by the lucrative rewards and offers being given by the credit card company. In contrast, at other times, a new credit card is seen as a means to obtain a higher amount of credit on which to rely on. While these aspects might appear lucrative on the face of it, having more credit cards than you can handle is the worst mistake you can make when it comes to managing your finances. The more credit cards you use, the higher your debt, and the more significant chunk of your income you will spend paying off the bills.
- Paying only the minimum amount
Often, credit card users hold the false belief that making just the minimum due payment on their credit card bills is enough to settle the bill. However, this is only a myth as paying only the minimum and leaving the remaining portion of your bill unpaid will add to your debt by piling up. Do not make this mistake unless you are in dire financial straits and need to balance your budget by making adjustments in your payouts. Make sure that you clear your entire credit card bill at one go at the end of the monthly billing cycle to avoid higher interest rates and debt.
- Using your credit as a substitute for income
Many credit card users believe that credit value on their credit card can be substituted for the expenses they would have incurred on their income. This is nothing but another trap for you to land into massive debt if you are not careful. Avoid using your credit card as a means to pay for the regular and daily expenses you incur, such as a daily coffee run, grocery shopping, etc. and instead manage these expenses by paying them at the moment of purchase. Making these transactions on credit can severely impact your income in the future as the bill for the credit card will need to be paid from the future income. This will leave you in a crunch when it comes to managing your daily expenses and the monthly budget.
- Not setting a limit
Are you avoiding setting a use limit on your credit card? As much as you tell yourself that you are a wise spender and will not charge too much on your credit card, you can fall into the trap of overspending with a credit card in your pocket if you do not set limits on the card. A limit on usage is the first step to managing your expenses wisely. Setting a limit on your credit card will ensure that you do not get tempted to charge any significant fees on the credit card. You cannot pay off and prevent you from falling into debt.
- Maxing out your credit card
As a reply to the setting of limits on a credit card, it is also a terrible idea if you max out your credit card month after month. This will indicate that you are not a wise spender and do not plan your purchases. In turn, this shows on your credit statement, and any potential lender investigating your credit statement will form an adverse opinion about your spending habits and indicate a higher credit utilization ratio, which is inadvisable.
- Carrying balance at the end of the month
While you shouldn’t max out your credit card every month, you should not leave a high balance on the card at the end of the month, either. Many people believe that the higher the balance, the better it is for their credit score.
However, high stability at the end of the payment cycle is also an indicator of incorrect usage of available credit. The higher balance also attracts higher interest rates, which means you will end up paying higher on available credit value. An ideal credit utilization pattern would be to maintain a 30 percent balance on the card at the end of the month so that you can manage your spending and keep the interest rates at the right percentage year after year.
- Not checking the monthly statement
Many credit card users do not go over their monthly statements carefully and pay what is given at the end of the report without going over the details. No matter how pressed you are for time, go over your monthly credit card statement carefully. This will help you identify the faulty transactions. Immediately identifying and reporting such transactions will also save you from any frauds and scams.
Owning a credit card is a momentous milestone for any individual. Whatever your purpose for obtaining your credit card, making wise use of it is essential to maintain financial prudence in short- and the long-term. With this list of nine tips on how not to use a credit card, you can well be on your way to making the best of your purchases and financial goals and dreams.
Aahna Gandhi is an enthusiast traveller, writer and a PR Professional. She likes sharing memorable moments from her travels and inspire others to live a life full of wonder. Known for her content, she has worked for travel, technology, lifestyle, health sectors as well as finance.
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