Video: 3 common credit card mistakes
Buying things on credit has been around since about 1300 B.C. when Babylonians invented a kind of proto-mortgage...so you'd think by now we would be experts. Nope, we still encounter plenty of pitfalls when paying with plastic and the worst part: Even the most innocent misstep can impact your finances. For example: missing out on one payment could drop your credit card score from 60 to 100 points.
Tip: Use a simple calendar -- digital, hanging on the fridge, or otherwise -- to remind you to pay your credit card bills on time. Or sign up with your issuer to receive text or email payment reminders.
Here are the three other most common credit card mistakes we make...and how to avoid them.
Mistake Number 1: Paying
only the minimum
Paying the minimum amount on your credit card bill satisfies your issuer, but it will stretch out the length of time necessary to pay off the debt...and how much you end up paying in interest. Fortunately, you can fight your debt on your own terms.
Tip: Pay a little bit more every month consistently -- or better yet, pay the entire balance. For example, a $10,000 balance on a card with a 20 per cent interest rate. If you pay $300 monthly instead of $250, you can shave off 17 months and $1,900 in interest.
What's $1,900? That's a (really) shiny new lap top...or a transmission...or a few month's rent!
Mistake Number 2:
Withdrawing cash using a credit card is tempting, especially when you're broke. But high fees and interest rates make cash advances one of the worst ways to borrow money. Credit card companies charge hefty interest rates (usually 20 per cent in Canada) and a cash advance fee (1 to 4 per cent).
Tip: Apply for a line of credit account. These generally charge half the interest rate of a cash advances and usually have no transaction fee.
Mistake Number 3:
Getting trapped by annual fees
Most credit card companies offer rewards cards that give you rewards points, cash back, or airline miles. But if you read the fine print, you'll often discover
1. A hefty annual fee
2. You have to spend an awful lot on your credit card to make these additional fees worthwhile
3. If you tend to carry a balance, any rewards you earn will be negated by interest charges. In other words, you'll be paying for those "free" rewards points.
Tip: If you're in the market for a rewards card, make sure you compare cards and ask yourself these questions:
1. Are the benefits really exceptional?
2. Will you definitely make use of the rewards or benefits offered?
3. Are the rewards easy to claim and use?
So there you have it, the most common credit card mistakes. Be sure to check out our news page for the latest news and advice about credit cards in Canada.
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