Getting a credit card may seem fun and convenient but it comes with a huge responsibility. One mishap can cause a lasting effect on your finances. We’ll show you how to make owning a credit card a breeze, just by avoiding the mistakes below!
1) Treating Your Credit Card Like It's Free Money
Having the mindset that your credit card is an endless source of cash will eventually lead you to make purchases beyond your means - without even considering if you could pay it off. Learning to manage your credit card spending prevents you not only from incurring a huge credit card balance and enormous amount of debt.
2) Hoarding Credit Cards
It is not a good idea to own multiple credit cards. Especially if you are applying for one to get out of an existing credit card debt. Juggling numerous credit cards can make it hard to handle balances which can lead to forgotten payments. It can also cause you to overspend, plus misplacing or losing a credit card is not unlikely, especially if you have a lot of them. This increases your risk of credit card fraud.
3) Making Late Payments
Missing a payment brings down your credit score and can incur hefty charges. Not only does it cause you to rack up on interest charges but it can also cause an increase in the interest rates you enjoy as most banks offer lower interest rates if you are prompt with payments. So prevent not paying your dues on time by signing up for online alerts.
4) Overlooking Your Credit Card Statements
Always read your credit card statements. It contains important information such as a change in fees, increased interest rate, and a change in due date. By reviewing your purchases, you can easily spot and report if you have been charged incorrectly. Being aware of what's going on with your credit card can save you a lot of trouble down the road.
5) Abusing the Cash Advance
This might seem like an easy option to get quick cash, but it's costly. There's a fee for when you take out cash which could range from about 5%. On top of that, the interest charges can go up to around 18%, and the interest is calculated daily on the total amount you have borrowed. Assess the situation carefully because maybe taking a personal loan is a better option than a cash advance. Prevent enormous charges by using cash advances for emergencies only.
6) Neglecting the Fine Print
The terms and conditions that come with a credit card can be lengthy and full of financial jargon. But it pays to read it to understand what you are getting yourself into. In the fine print, you'll find important things like when the introductory period ends, when your first payment is due, what the interest rate is on the cash advance, etc. If there is something unclear to you, ask your card issuer about it. Reading the fine print can help you get the most of your credit card and can save you the trouble of unwanted mistakes.
7) Paying Only the Minimum Amount Each Month
Minimum amounts may look more appealing and affordable but don't make it a habit of paying just that. This can lead to added interest and debt. This creates a cycle of debt with balances and things can spiral downwards from there. Pay as much as you can to diminish your balance immediately.
8) Getting Confused With the Introductory Rate
Don't get too excited with the low introductory rates. These are offered as promotional interest rates and are available for a limited time only. Verify when the promotion will end to avoid shock when you find out that your interest rate has increased.
This article is contributed by CompareHero.my.
CompareHero.my is dedicated to raising financial literacy in our country and to helping everyday Malaysians make smarter and well-informed financial decisions in life.