The debate over whether the demand for consumer goods has fuelled the increased availability of credit, or the availability of credit has spurred on the demand for consumer goods, is a matter best left to those who enjoy pondering chicken and egg situations. One thing is for sure though; credit card debt has become an epidemic that threatens to topple the financial security of millions of families.
Credit Cards Can Be Bad News
A credit card is just a credit card after all. It can’t wreak havoc all on its own, but it can certainly be used as a weapon of mass consumption. Credit cards are dangerous because;
- They are easy to access. Many credit card applications come pre-approved in the mail, no solicitation required. It really can’t get any easier than that.
- They come with attractive starter rates. Low introductory rates can lure consumers into a false sense of security because just when spending starts to get sporadic rates tend to spike.
- They are accepted everywhere. When a store doesn’t accept credit cards you tend to think twice about their legitimacy or look around to make sure you have not been transported back in time. Credit cards have indeed become the universal language because they can be used anywhere with no need for clumsy currency conversions.
Credit Card Mistakes that Could Be Sending You to the Poorhouse
While there are responsible ways to use credit cards, people who get into financial trouble are usually guilty of making the following mistakes:
1. They Spend Right Up to the Limit
Your spending limit should not be viewed as your spending goal, although this kind of thinking makes credit card companies very happy. Your limit is simply the amount that the credit card company deems would be reasonably safe to allow you to use. Bear in mind that this figure assumes you will pay over a lengthy term, so it not realistic to use it all in one month.
2. They Don’t Pay Balances on Time
If you are guilty of paying your credit card after the balance falls due you are certainly not alone, but this practice can be very costly. Late payments come with fees and interest charges on the overdue amounts that can severely increase your total debt.
3. They Pay Only the Minimum
Although paying only the minimum is seductive because it leaves you with access to your cash while giving you the false sense that you are working towards paying off your balance, it is a huge mistake. When you pay only minimum payments you exponentially increase the size of your debt and it can take a long time to get rid of it, especially if it is not made a priority.
4. They Don’t Have a Clue About their Billing Cycle
Knowing your billing cycle helps you to take control of your payments because you can anticipate when your next bill will arrive and how much you’ll have to pay. Knowing when your new billing cycle starts can also help you to schedule purchases so you can maximize interest free use which is applicable on some cards. If your billing cycle starts on the 17th of the month, you can put off making a purchase until that date so you will have to pay for it in the following month instead of at the end of the current month.
5. They Don’t Know What Interest They Will Be Charged
If you don’t have any idea of your interest rate it is impossible to figure out how much your purchase will cost you if you don’t pay off the balance immediately. This can lead to a dangerous complacency.
Credit card debt has the potential to bring down your financial house, so it is extremely important that you make every effort to avoid making costly mistakes.