There are many advantages to owning a credit card. But if left unchecked, you might be drowning in debt in no time. We don’t want that. It’s time to use it wisely.
So here are 9 credit card mistakes you should avoid for better financial health.
Missing a Payment
With all the swiping you have done, you might forget that you have to pay for it. Did you know that you are charged for interest if you miss a payment (usually around 2.75-3.5% per month) plus late fee charges of up to 6%?
Not to mention, you are also charged for the balance that’s not due. For example, you have an outstanding balance of 60,000 PHP. And the required payment is 20,000 PHP for June. The remaining 40,000 PHP is due for July.
If you fail to pay anything by June, the interest and charges will apply for the whole 60,000 PHP. Yikes! So keep your due dates on calendar, and pay on time!
Paying Only the Minimum Payment
Usually, you have 2 choices when paying for your balance — paying for the full amount or just the minimum payment. The minimum balance is around 5% of the total amount due.
So imagine if you have a 10,000 PHP outstanding balance, you just need to pay 500 PHP to avoid the late charges. Is this a good practice? The answer is no.
Credit cards have the highest interest rates for all loans available. Again, it’s around 2.75% to 3.5% per month. That’s 33% to 42% per year! If you continuously pay only the minimum, you would have paid around double the 10,000 PHP amount. So always pay the full amount due as much as possible.
Treating Your Balance as Free Money
It’s tempting to live beyond our means when we use our credit cards. Our wants are just a swipe away. And we can even pay for monthly installments. Of course, you can do this occasionally. But do watch your spending.
Treating your balance as free money will dig your own debt grave. So watch out and only charge what you can pay for.
Not Checking Your Line Items and Charges
Sometimes, credit cards have unusual fees and charges. Examples are credit insurance. These are charges that enroll you in insurance just in case something happens to you.
But sometimes you don’t need these charges. It’s one call away to waive these charges out. Make sure to check your billing statement and rule out expenses you can waive.
Not Asking to Waive Your Annual Fee
Aside from interest and charges, banks also earn annual fees for owning a credit card. It’s payment for having a credit line, and it’s usually charged a year after. But did you know that it can be waived?
Yes! Most banks will just ask you for a minimum amount of spending. Again, it’s just one call away to waive that extra charge. Sweet!
Relying Too Much on Balance Conversion
Sometimes, we have expenses or items that we need to pay. But then, we can’t afford to pay it one time. For example, your refrigerator was suddenly damaged by a flood. And your emergency fund can’t cover buying a new unit. And for some reason, there’s no 0% installment offered by the store.
That’s where balance conversion comes in. You can convert your straight payments to installments with additional interest. You can now enjoy a new unit without the hefty one-time cost.
But most people might abuse this. And buy all the things they want and later do balance conversion. These expenses can add up and leave you with a mountain of debt.
So be wary. And use it wisely.
Not Knowing Your Credit Card Perks and Rewards
Most credit cards have perks and rewards that you can take advantage of depending on your needs. For example, if you travel frequently, a card with a rewards mileage might be the best for you. There are also cards with grocery cash backs and more.
You should know what your card has to offer. As much as possible, take advantage of these perks to save money from your purchases.
Having a credit card is convenient for our daily lives. But it can surely be a gateway to a life of debt when left unattended. So with the points above, I hope you avoid these mistakes for a better financial bottom line. Cheers to building your finances!