Despite what many credit card users believe, credit cards are not free. No matter how they’re advertised by credit card companies, credit cards have a cost. Unfortunately, many cardholders don’t realize these costs until they appear on a credit card billing statement.
You can avoid many credit card costs by using your credit card responsibly. Here are 9 slip-ups that can increase the amount you pay for the convenience of using a credit card.
1. Paying credit card bills late.
When you use your credit card, you agree to pay your minimum payment by the due date. If you’re late on your credit card payment, there are some costly consequences. You’ll get charged a late fee that could be as much as $39 in some cases. Then, your interest rate could increase, which would also increase your minimum payment. If you’re in the habit of paying the minimum on your credit card, the late payment fee could make it hard to get caught up on payments.
2. Going over your credit limit.
Your credit limit is the maximum amount you can charge on your credit card without being charged a penalty. If you go over your credit limit, you’ll be charged an over-the-limit fee. Just like with late payments, your interest rate could increase if you exceed your credit limit. The over-the-limit fee will make your minimum payment go up. If you don’t pay the late fee plus your regular minimum payment, you’ll be charged a late fee.
3. Misunderstanding balance transfer deals.
A six-month zero percent interest balance transfer offer is a good deal, if you can pay off the balance within six months. However, once the offer expires, you’ll be subject to a much higher interest rate. The interest rate could be so high that you negate all the interest you saved during the no-interest period. Before you do a balance transfer, make sure you understand the terms of the promotion. Check your budget to see whether you can afford to pay off the balance within the promotional period. If you can’t, it could be cheaper to leave your balance where it is.
4. Taking out a cash advance.
Cash advances are much more expensive than purchases of the same amount. That’s because cash advances have a fee and a higher interest rate. Not only that, interest begins accruing on a cash advance the day you make the withdrawal. So, you don’t get a grace period to pay off the balance and avoid a finance charge. Since cash advances have higher interest rates, you’ll face higher finance charges on the balance.
5. Failing to report unauthorized credit card charges immediately.
When your credit card is lost or stolen, it’s important to report the missing credit card as soon as you notice the theft. If you notice fraudulent activity on your account, let your credit card issuer know as soon as possible. If you wait more than 60 days to report credit card fraud, you could be liable for some of the charges.
6. Paying only the minimum.
Making minimum only payments is always more expensive than paying off your credit card balance quickly. The longer it takes you to pay off your credit card balance, the more you’ll pay in finance charges. If all you pay is the minimum, you could end up paying double the amount of finance charges than the amount you originally charged.
7. Making purchases just to get more rewards.
Reward credit cards can be very beneficial, when you can afford to pay off the balance at the end of every month. Abusing reward credit cards just to accumulate rewards is risky because you pay not be able to repay the balance. Plus, reward credit cards tend to have higher interest rates, so if you don’t pay off your balance quickly, you could end up paying more in interest than you received in reward benefits.
8. Failing to read your credit card mail.
Credit card issuers are required to send advance notification of certain credit card changes, like an increase in your interest rate. If you have a tendency to throw away unmarked mail or even your billing statement inserts, you could miss an important announcement about your credit card. These disclosures keep you from going over your credit limit, making purchases on a high interest rate credit card, or from trying to use a credit card that’s been closed.
9. Adding authorized users to your account.
When you add an authorized user to your credit card, that person is allowed to make charges on the credit card, but isn’t required to make payments. Instead, you, as the primary account holder, are responsible for paying all charges made on the credit card. So, if your authorized user maxes out the credit card and incurs an over-the-limit charge, it’s your responsibility. You have to decide whether that’s a risk you’re willing to accept.
Credit card companies want you to pay more credit card fees because it makes them richer. If you want to avoid paying steep fees for your credit card, pay attention to the terms and conditions of your credit card and avoid these costly credit card slip-ups.
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