Best Tips to Avoiding Costly Mistakes by Using Credit Cards

Written by Posted On Sunday, 11 August 2019 03:35

Credit cards can be a convenient and secure way to make purchases and increase your credit scores. They can be a useful financial tool when used correctly, but most of the time they are the ruin of our financial problems.

Do you know average American has 2 to 4 credit cards in his wallet? This causes Americans to have a credit card debt of approximately $ 5,500. I hope you're not one of them, even if you are, don't worry, there's a way out.

So, let's look at five tips to use our credit cards wisely:

1. Get a card that fits your spending habits

How many times have we received credit card and loan offers in the mail?
best credit cards for bad credit offered to seem like a very good deal, like earning points to get free air tickets. The problem with that card is that you need excellent credit to get started and, unless you buy with this card frequently, the card closes after 18 months of inactivity.

Therefore, you should find the right credit card for your spending habits and lifestyle. Suppose you frequently buy at Amazon, then an Amazon credit card would suit you more since you will get a 3% refund on each Amazon purchase (plus a free $ 50 gift card once approved).

Make sure to do your homework, compare cards and read the fine print to find better a card that suits your spending and budget habits.

2. Pay your credit card payment on time

You would be surprised to know that 2.84% of credit cards are in default, which means payments are delayed 30 days or more. You may think that one of the main reasons why people say they are late in paying their credit card is that they simply did not have the cash, this is true, but the main reason is that they simply forgot it.

What happens if you lose one or two payments? A late payment can affect those with higher credit scores, up to a drop of 90 to 110 points on a FICO score of 780.
To counter this, set up automatic monthly payments through your online banking or create a reminder on the calendar of your smartphone or computer to notify you when it's time to pay.

3. Keep a record of your expenses

Credit card is "instant money," and it can be very easy to accumulate more debts on your card than you can pay, so it is important to keep track of your expenses.
Download your credit card application or use a budget application to keep track of all your expenses. Get used to checking your balance and the amount budgeted before making purchases so you can stay within your budget.

If you spent too much, it will add tension to your monthly budget, either having to take money from another source to cover your bill, or only making a partial payment that increases your interest rate, in addition to increasing the length of time it takes to pay it.

4. Maximize your monthly payments

Did you know that the minimum monthly payment specified in your credit card statement is a trick used by companies to earn more money?

They set the minimum that will cover a small amount of capital, which means that it takes longer to pay for everything, which incurs interest. For example, your credit card has an interest of 17% and a balance of $ 10,000 and the minimum payment is $ 200. The interest is $ 150, and only $ 50 is for the principal, in 12 months it is $ 1,800 in interest and $ 600 in your balance.

To manage this, pay more than the minimum each month, either more money monthly or make more payments. Paying a little each week actually creates a larger payment. Suppose you have a minimum of $ 80 per month: the value of one year is $ 960, try increasing it to $ 100 per month that is $ 1,200. Now, suppose you paid $ 30 per week, that is, $ 1,560 paid with that card.

5. Don't use your credit card to make ends meet
what happens if you have little cash before payday and cannot cover your expenses? Using your credit card or getting advance cash will not work for you in the long term. It can help you overcome the immediate crisis, but it will eventually end up in even greater debt.

The sad thing is that you know it will not be the first time you are in a bind; sometimes it can take a few months of this repetition until it softens. Credit cards have an established credit limit, what will you do when you have reached it?

That's why It is so important to have an emergency fund to cover unexpected financial costs.

Final thoughts

I just listed 5 credit card tips to avoid costly money mistakes, but let me emphasize what happens if you trust your credit card too much:

• You will run out of credit: you have an established limit, so what will you do when you run out of credit?

• You may have trouble paying for it; If you trust your card too much, you will reach a point where you will not be able to pay it and it will take "forever" to pay it or stop paying it in full.

• You risk losing your account: exceeding the limit or missing payments may cause the company to reduce its credit limit or close the account completely.

• Your credit score is affected: the amount of debt you have is the most important factor in calculating your credit score.

• Pay more: you are paying interest on everything you have been charged and the longer it takes to pay it, the more interest you will have paid.

• Stay in a financial routine: trusting your card does not improve your situation, as you are constantly paying interest and increasing monthly payments.

• You are not addressing the real problem: trusting your credit card to make ends meet is not a solution to your money problems. You must address the real problem of why you cannot cover your bills without your card.

Having a credit card is not necessarily a bad thing, but you should be careful and cautious when using them to avoid future financial headaches.

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