Credit cards are a great resource for building and maintaining credit. However, if the credit line is not managed properly, trouble is sure to follow. You can quickly find yourself in debt if you choose to charge a major purchase, for example, without a solid plan on how to pay back what you owe. That $500 television could end up costing you more than $750 once you include interest if the balances are not paid in full. Here are five mistakes you could be making with a credit card and ways to fix them, instead of letting the debt worsen.
1. Going beyond the introductory rate window
Most credit cards will offer zero percent interest for terms like six months or a year if you agree to make the minimum monthly payment when it’s due. If you are disciplined, you can break down the purchase of an expensive item into more manageable, interest-free payments.
Solution: If you go beyond the introductory time frame (or if you fail to make the payments on time during the promotion) the higher APR goes into effect.
The mistake here is getting saddled with a large balance and a higher interest rate. If you are going to charge your item, make sure you have the cash to cover the monthly payment terms before the higher interest rates take over.
2. Getting hit with cash advance fees
Beware of the temptation of cash advances. Between potential up front fees and likely higher interest rates, you could be stuck paying back that short-term loan for a long time.
Solution: Consider alternative options with lower fees and better repayment terms, like an LGFCU Visa® Credit Card, to bridge the cash crunch. There are no fees for cash advances or balance transfers.
3. Paying just the monthly minimum
Another potential pitfall is only making the minimum monthly payment. Depending on how much you owe, it could be decades before you’re done paying off that debt. Creditors are now required by law to help you understand how much you owe and how long it will take to repay that amount, not to mention how much interest you’ll end up paying. That information is now found on your statement.
Solution: Review the details carefully, so you’ll know how much more you’ll need to pay every month to eliminate the debt in the shortest amount of time and spending the least amount of money.
4. Making payments after the due date
Paying your bill late can damage your credit score, making it difficult to secure a loan or, in some cases, get a job. Fees and higher interest rates may be added on, increasing your debt load. Look for your statement every month and pay the bill as soon as it arrives.
Solution: Try using automatic BillPay through your LGFCU Checking Account to ensure your payment arrives on time and avoid late fees.
5. Closing a long-term account
A long and stable relationship with a credit card company can be a good thing. But if you close a card that you’ve had for a long time, it could lower your credit score. Specifically, it could impact how potential creditors view your debt to available credit ratio when you try to get a loan.
Solution: Instead of closing that seldom-used account, consider keeping your oldest card open. Periodically make a small purchase you can easily pay off to avoid having your account closed (and credit score lowered) due to inactivity.
Avoiding costly credit card mistakes means only charging what you can repay in full each month or making more than the minimum payment due. Watch out for these five credit card pitfalls by rethinking your charging habits.