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Whether you’re maximizing a sign-up bonus to land a free vacation, or getting cash back that you can use to buy something else, your choice of credit card can get you a bevy of freebies if you choose the right one. But that’s only if you steer clear of some of the most common mistakes that people make when using cards.
1. Making the Minimum Payment
What people think: “I would rather save the extra money right now.”
The reality: Making a minimum monthly payment is not ideal for two main reasons. When the amount of debt you have as compared to your available lines of credit is high, you become less appealing to lenders. Also, credit card interest can sometimes cost the same as a plane ticket you could’ve gotten for free had you saved points and paid off your card in full each month. By paying only the minimum, you’re incurring much higher finance charges and can be increasing the real cost of whatever you purchased by more than you might think. For example, if you are carrying a $4,000 balance on a card, and your interest rate is 18%, when you pay only the minimum, it could take you about 36 years and more than $10,000 in interest to pay it off. If you can’t pay your balance off each month, paying even a little more than the minimum amount due can have a positive impact.
2. Taking a Cash Advance
What people think: “I have to pay my rent, and I don’t have enough money in my bank account to cover the expense. I’ll take a cash advance from my credit card to pay for it because I really need the money.”
The reality: Being able to access cash from your credit card may sound like a great option if you are in need of readily available cash through an ATM. But think twice before you act on any impulse to do so. The rates and fees that you may incur can be astronomical. Let’s suppose that you need $500, and you take a cash withdrawal from your card. First of all, your bank charges $10 or 5% of the amount of the withdrawal, whichever is greater. So, before you pay any interest, you’re in the hole for $25. Then, depending on how long it takes you to pay back the cash advance, the interest rate could be as high as 25%. Remember that cash advances have no grace period so you begin to accrue interest from the moment that you take the cash from the ATM. We suggest finding another way even if it requires borrowing from a family member, and use the cash advance option as a very last resort. Plus, if you’re in need of cash to cover living expenses like rent, you may want to look into how you might reduce your living expenses.
3. Letting Rewards Distract You From Managing Your Debt
What people think: “I really want to fly free to Florida this spring so I’ll charge as much as I can to my credit card to get a free ticket.”
The reality: We know that credit card rewards can deliver some amazing benefits. However, those benefits aren’t worth a whole lot if you’re saddled in high-interest debt. If you’re only focusing on getting the 20,000 mile sign-up bonus to offset the cost of your ticket, you’re not looking at the whole financial picture. Carrying a large balance to get a “free” flight could end up costing you thousands in interest.
4. Substituting credit for cash
What people think: “ I use my credit card because it’s convenient, and I like being able to just use it whenever I want without worrying about cash.”
The reality: Although we believe that using a credit card can be a better solution than using a debit card or cash when you plan your monthly spending carefully, if you just use your card without carefully monitoring where the money goes or where it’s coming from, it could get out of hand. It’s important that you monitor your spending, and put a system of checks and balances in place that allows you to use your card without overspending. We recommend reducing your credit line if you have trouble managing your monthly purchases without a little more control.
5. Not Making Payments on Time
What people think: “I can pay my credit card bill with a few computer clicks, and even if I’m a little late it won’t impact my credit.”
The reality: Failure to factor in enough time for account processing when paying your credit card bill can be a disaster long term. Your credit report indicates late payments in 30-day increments, so any payment overdue by 30 days or fewer counts as 30 days late. The penalty for that mark against you can be late fees as high as $35, and a higher rate of interest that then translates into a lower credit score. Overall, your payment history accounts for more than 30% of your credit score, so being timely should be a priority.
Bottom line, if you follow these relatively easy steps, your credit history will continue to be a positive one, you’ll be eligible for lower rates on loans, and you’ll be able to reap the rewards of the credit cards of your choice.
Do you have any other credit tips that you would like to share? We would love to hear from you. Simply comment below, and we’ll be more than happy to start a dialogue.
Barclaycard Arrival Plus™ World Elite MasterCard®
- Earn 50,000 bonus miles after you spend $3,000 on purchases in the first 90 days – that’s enough to redeem for a $500 travel statement credit
- Earn 2X miles on all purchases
- Redeem for travel or cash back statement credits, gift cards and merchandise. Redemption values vary
- Get 5% miles back to use toward your next redemption, every time you redeem
- Miles don’t expire as long as your account is open, active and in good standing
- No foreign transaction fees on anything you buy while in another country
- 0% introductory APR for 12 months on Balance Transfers made within 45 days of account opening. After that, a variable APR will apply, 16.99%, 20.99% or 23.99%, based on your creditworthiness. Please note, there is a fee for balance transfers
0% Intro APR for 12 months
16.99%, 20.99%, or 23.99% variable
$0 first year; then $89