Seven Common Credit Card Mistakes
A credit card can be a wonderful tool for those committed to managing it wisely but a dangerous weapon for those who don’t. We often talk to customers who have gotten themselves in trouble with credit card debt either through mistake or by unfortunate circumstance. Since credit card usage is an important factor in your credit score, this can impact ability to borrow money for a home, vehicle or other things you might need.
Credit cards are terrific for online shopping, earning cashback on purchases, and as a quick helping hand in an emergency but things can get out of hand quickly.
What are some common mistakes among credit card users?
1. Paying the minimum payment – The minimum payment is not the same as what you owe. You owe the total balance but the minimum payment keeps you in good standing with your creditor. Your debt will continue to increase because you are charged interest on the remaining balance.
2. Overspending – Many people get excited when they have so much spending power and end up charging more than they can pay off. Only charge what you know you can pay that month. If you use your card like an emergency fund, be conscious of how many months it will take to pay off the balance and how much interest you will pay along the way.
3. Missing a payment – Failing to make a payment or even just paying late can lead to fees and impact your credit score.
4. Paying interest – Carrying a balance will lead to interest charges and cause your debt to grow quickly.
5. Maxing out the card – Using all or most of your available credit is known as a high credit utilization ratio and can negatively affect your credit score.
6. Loaning it to someone – Never loan your card to someone else. Remember, you are legally responsible for all charges they make. In addition, you cannot dispute the charges as fraudulent because you willingly entrusted your card to someone else.
7. Avoiding knowing your balance – Once the balance and interest fees start to creep up, it may be tempting to ignore the predicament you have created. Keep an eye on your balance and form a plan for how to begin paying it down.
If you have made these mistakes, it’s not too late to change your habits and correct the problem. It may be tempting to go looking for a quick fix like a consolidation loan but think twice before you do this. After all, if you have accumulated a large debt once, odds are you’ll do it again if you don’t first engage in meaningful changes where credit is concerned. The pain of paying off old debt isn’t fun or easy but it is memorable and will help you change your behaviors so you don’t find yourself in this same position in the future.
Here are some things to work on:
1. Stop using the card – Not only do you need to stop incurring more debt, you need to change your spending habits. Begin using your debit card or cash for purchases instead.
2. Start paying as much as you can – Begin throwing as much money as possible at your credit card balance. With online access to your card, you can even make multiple payments per month. This is especially handy if you’re paid weekly or if you have a windfall like a tax refund or really good commission month.
3. Begin looking for more money to dedicate to this – Start studying your budget for extras that can be eliminated or reduced. Don’t have a budget? You need one so you can see exactly where your money is going. Maybe there’s nowhere to cut. Is there something you can sell? Can you get a side gig? How you can you find or earn extra money to make this debt go away?
4. Multiple cards require choices - If you have debt on more than one card, choose one to focus your attention and extra money on. In other words, keep up with minimum payments on everything except one card where you will throw all your extra money. Once that card’s debt is gone, turn your attention to another one and keep going!
5. Choose a snowball or an avalanche - There are two popular ways to choose which card to focus on first. One is called the Debt Avalanche Method. This is where you put all your extra money on the card with the highest interest rate. Once that card is paid, apply that payment to the card with the next highest interest rate. This will save you a lot in interest over time. The other option is the Debt Snowball Method which prioritizes motivation over interest rate. Again, you make minimum payments on all the cards but put all your extra money on the card with the smallest balance. Once that’s paid off, you snowball that payment to the card with the next smallest balance. This can give you a sense of accomplishment because you see your debts going away more quickly.
6. Celebrate the small achievements – Getting out from under the pressure of high interest credit card debt feels good! Celebrate as you pay off a debt and celebrate along the way so you can remember that your hard work and sacrifices are moving you toward a very big goal!
See below for the VCNB Resource Guide For Better Money Habits.
Resource Guide For Better Money Habits
Do You Have A Poor Relationship With Money? https://www.vcnbfamily.bank/Why-VCNB/VCNB-Blog/deep-dive-do-you-have-a-poor-relationship-with-money
Budgeting 101: https://www.vcnbfamily.bank/Why-VCNB/VCNB-Blog/budgeting-101
Sticking To A Budget: https://www.vcnbfamily.bank/Why-VCNB/VCNB-Blog/sticking-to-a-budget
Why Your Budget Doesn’t Work: https://www.vcnbfamily.bank/Why-VCNB/VCNB-Blog/why-your-budget-doesnt-work
Get Your Finances On Track With A Spending Fast: https://www.vcnbfamily.bank/Why-VCNB/VCNB-Blog/get-your-finances-back-on-track-with-a-spending-fast
31 Ways To Save Money: https://www.vcnbfamily.bank/Why-VCNB/VCNB-Blog/31-ways-to-save-money
Ways to Save On Food: https://www.vcnbfamily.bank/Why-VCNB/VCNB-Blog/nine-changes-to-save-on-food
Emergency Fund 101: https://www.vcnbfamily.bank/Why-VCNB/VCNB-Blog/emergency-fund-101
Tidy Up Your Finances https://www.vcnbfamily.bank/Why-VCNB/VCNB-Blog/tidy-up-your-finances-this-fall
Think Of Financial Wellness As Self Care https://www.vcnbfamily.bank/Why-VCNB/VCNB-Blog/thinking-of-financial-wellness-as-self-care