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5 Common Mistakes People Make With Credit Cards That Cost Money

Schools don’t usually teach about credit cards, so many of us learn as we go. And because no one’s a natural with credit cards, it’s normal to make mistakes here and there.

Unfortunately, these learning experiences can be expensive. That’s why you’re much better off learning about common credit card mistakes before they happen and before they can cost you any money.

1. Only paying the minimum

Every month, your credit card bill will have a statement balance, which is the balance at the end of the billing period. If you always pay the statement balance, you’ll never be charged interest. Your bill will also have a minimum payment amount.

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Some people make minimum payments because it’s technically all you need to pay. But because credit cards require very small minimum payments, it takes an extremely long time to pay off debt this way.

Let’s say you have a $4,000 balance on a card with a 22% APR. That’s near the national average of 21.59%, according to the Federal Reserve. If you only make minimum payments, it will take 259 months (over 21.5 years) to pay off your card, and it will cost you $6,693 in interest.

You can see for yourself on your credit card statement. Card issuers include how long it will take to pay off your bill if you make minimum payments. In one of my statements, it literally says “if you make only the minimum payment each month, we estimate you will never pay off the balance shown on this statement.” That’s right — if I made minimum payments, I’d be making them forever.

2. Paying late

It’s important to pay your bills on time. If you miss your credit card payment, your card issuer can charge you with a late fee.

On a positive note, credit card late fees are on their way down. They’re going to be capped at $8, thanks to a new rule by the Consumer Financial Protection Bureau (CFPB). But there’s still no reason to pay your credit card company an extra $8.

Also, if your payment reaches 30 days past due, then your card issuer can officially report it as late on your credit history. This has a huge impact on your credit score — it could bring your score down by over 100 points.

The easiest way to avoid late payments is autopay. I’ve set up automatic payments for the statement balance on all my credit cards. I never have to worry about remembering my payments, and I also never pay any interest.

3. Spending more than you can afford

When you start out with credit, you may have a low credit limit. I remember that my first credit limit was $500. But if you pay your card on time every month, your credit score should improve, and you’ll qualify for higher credit limits.

Just because you’re approved for a certain credit limit doesn’t mean you should spend that much money. In fact, it’s probably better that you didn’t. If you use a large amount of your credit, it can lower your credit score.

Overspending also puts you at risk of credit card debt. With credit cards, many people fall into the trap of going for instant gratification. They buy what they want even if they don’t have a plan to pay it back. As a result, they end up paying extra in the form of interest.

It’s good to get into the habit of only making purchases you can afford to pay back immediately. If you don’t have the money for it, save up for it instead of putting it on credit.

4. Making cash advances

Many credit cards offer a cash advance feature. You can set up a PIN and use your credit card to get money at an ATM. There are just a few problems:

  • There’s a cash advance fee, normally 5%.
  • Credit cards almost always charge a higher APR for cash advances.
  • Your card issuer can charge interest on cash advances immediately. There’s no grace period like there is with purchases.

Although you may be able to get cash with your credit card, you’re better off avoiding this feature entirely.

It’s also worth mentioning that certain types of transactions can be considered cash advances, even if you didn’t withdraw cash. For example, if you wire money and pay for it with your credit card, that will almost certainly be treated as a cash advance. If you see a warning that your card issuer may treat a transaction as a cash advance, pay with your debit card instead.

5. Choosing a card that doesn’t fit your financial goals

There are several types of credit cards. Before you apply for a card, make sure it’s the right type of card for your current situation.

For example, if you want to earn rewards, you may start checking out cash back cards. These are a great choice if you’re looking for something easy to use. But if you travel all the time, you could be better off with a travel credit card.

Another way people sometimes go wrong here is focusing on rewards when they’ll need to pay off purchases over time. If you want to finance purchases, the best choice is a 0% intro APR card. This type of card has a 0% APR on new purchases for an introductory period. You’ll have time to pay off your purchases interest free, which will save you more money than earning rewards would.

All these mistakes are 100% avoidable. There’s no reason to beat yourself up if you’ve made any of them in the past — I’ve done so myself. But going forward, do your best to avoid them so your credit card doesn’t cost you any money.

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