Owning a credit card is a great responsibility; the temptation of having tens of thousands of rupees inside your pocket at all times proves to be too much to handle for most people which is how credit card debt is one of the most dangerous and easiest pitfalls to fall into. However, it’s not just credit card debt you should be wary of - there are so many mistakes of using credit cards that people tend to make unbeknownst to you that you might be making as well.
Here are some mistakes of using credit cards
Making Minimum Payments
This is one of the most basic mistakes a lot of people make. Imagine paying off just a few hundred rupees on a 10,000+ bill and calling it a day. Unfortunately, that reality does not exist. Making just the minimum payment on your monthly bill will end up racking you thousands of rupees in interest fees. Make sure you pay your monthly bill in full. If you wish to pay off a larger purchase over several months, call your bank and convert it to an instalment plan. Your bank might even have interest-free instalment plans with some vendors; regardless, the fee you pay when converting to an installment plan will always be less than the credit card interest fees.
Making Late Payments
Most credit card companies have long payment cycles, sometimes up to more than 45 days. This means you have over one month to settle your bill. This also means that you have no excuse for making late payments. Ideally, you should be paying your bill the moment it arrives or as soon as you receive your salary. Late payments do have penalty fees associated with them which are an extreme waste of money. Set a reminder on your phone for each month for each month’s payment due date and always double-check your mobile notifications to ensure you paid your bill. There might be some instances where you thought you paid your bill but you hadn’t.
Maxing Out Your Card
Just because you have a credit limit of hundred thousand rupees doesn’t mean you should max out your card often, even though you split it into monthly instalments and pay it off in full. Always being at your credit limit hurts your overall credit score in the debt-to-credit ratio i.e. the amount of credit available to you versus how much of it you are using. Be careful to maintain your debt at around 30% which is a generally-accepted limit.
Not Reviewing Your Statement
Do you tend to pay off the due amount every month without checking the breakdown of your bill? If so, you might be losing a lot more money than you think. Carefully reviewing your monthly credit card statement will not only highlight any discrepancies and bring to light any fraudulent activity, but you might actually gain some surprising insights such as a double transaction or that shop you bought your new phone from sneakily tacking on an extra 10% onto the bill simply because you used your credit card. Always check each transaction on your statement prior to paying the bill.
Misunderstanding Credit Card Fees
Interest is not the only fee associated with credit cards; there are more fees which you need to be aware of. If you use your credit card to withdraw cash from ATMs or to borrow money, there are fees involved which might be much higher than your interest rate. Depending on your credit card company, some vendors might even have higher interest fees. When applying for credit cards, make sure to read all the fees involved for all sorts of transactions.
Applying for Many Credit Cards
While there are many valid reasons for owning more than one credit card, it’s a slippery slope towards credit card debt. When juggling many credit cards, the chances are high of missing a bill or accruing a bill larger than you can realistically pay off that month. If you must own multiple credit cards, be very careful about how you use them; it’s a must to be methodical about each card: keep careful records and pore over the monthly bills carefully. Owning more than one credit card is a risk and a great responsibility, and one that must be undertaken only when you are capable enough to manage all of them simultaneously.
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Not Paying Attention to Transactions
Getting double charged or caught to credit card fraud is at an all-time high nowadays, with the growing popularity of online transactions which means that phishing attempts are also equally high. While most banks keep an eye out for suspicious transactions on your credit card, often directly calling you to verify certain transactions, there is a responsibility on you to report any fraudulent transactions as and when they happen. Subscribe to mobile notifications of any charges associated with your credit card and notify your bank immediately if you see an unusual charge.
Choosing a card that doesn’t fit your lifestyle
Selecting a credit card vendor is the most important step in owning one. Before applying for one, get information from all service providers and compare them. Keep in mind that what works for someone else might not work for you, therefore there is no “Best Credit Card” out there. Think about your lifestyle - your level of income, the kinds of expenses you make, what you plan on using your credit card for - and select the most suitable one.
Credit card debt is just one of the dangers and mistakes of using cards; if you are committing any of the above mistakes, relook at your credit card behaviour and avoid overspending and falling into big trouble.
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