Credit cards can be a nightmare for many users. An option that seemingly helps with larger purchases thanks to cash advances and can be convenient to use can end up bankrupting many citizens. With the interest rates set by banks, this option can end up being a difficult loan to repay. For many, it ends up being a vicious cycle that is difficult to escape, and in some cases, they end up on the delinquency list.
There are five common mistakes when using credit cards:
On the one hand, paying the monthly credit card balance late. Late payments can cost more than users imagine. With each late payment, the bank can increase the interest rate, and the amount owed can increase significantly. In addition, by late payments, the beneficiary risks losing any discount they would have received when they acquired the credit card. Some financial institutions, such as President’s Choice Financial, even have the authority to increase your card’s rate if they detect problems with your credit history, even if the late payment is on a different loan, such as an auto loan.
What happens when you pay the minimum balance?
The other mistake users easily make is paying the minimum each month. It’s advisable to always pay more than the minimum or, failing that, look for a card with 0% interest on balance transfers. What happens when you pay the minimum balance is that the interest increases. Most banks set a minimum payment between 2% and 3% of the total balance. Users then end up paying an even higher amount than if they paid more than the minimum.
Offering 0% interest on balance transfers
The third common mistake is not reading the terms and conditions of balance transfers. It’s common to see promotions from financial institutions offering 0% interest on balance transfers. The fine print usually specifies that these offers only apply to balances transferred from other cards; they don’t apply to new purchases made with the credit card. If the card is used to make purchases during the promotional period, those purchases will be charged the established interest rate.
A credit card’s credit limit is not usually the actual limit
Exceeding the credit limit may seem logical that this could lead to problems. A credit card’s credit limit is not usually the actual limit, meaning the user can use more money than they apparently agreed to. This is because the bank gives the cardholder a margin. The problem is that some banks don’t notify the user in advance and then apply additional charges. Regardless of whether they notify the user or not, there will be additional charges, usually resulting in interest.
If you add the interest and fee together it can end up being very expensive
Finally, there’s the mistake of using your card for cash advances. It may seem harmless, but the cost is high. This seemingly quick and easy solution starts accruing interest from the moment you make it. Furthermore, the rate is usually higher than that of normal purchases, and financial institutions often take advantage of the opportunity to charge an extra fee. So, if you add the interest and fee together, this simple and quick act can end up being very expensive.
The easiest option is always to get informed. If you decide to get a credit card, it’s essential to read the fine print and understand exactly the type of loan you’re taking out. Be clear about the interest rate, terms, and additional fees.
