Credit cards can be useful payment tools. They help you to make transactions and they can be very good for building your credit score. If you use them to pay for items or services and make your repayments when they are due, your credit rating will increase.
On the flipside, failure to honour payments can lead to disastrous results. Your credit score will plummet, risking your future ability to borrow money from financial institutions. With a good credit score, built as a result of handling your credit card balances well, you can qualify for cheaper mortgages, car loans and even an increase in your card limits.
It’s easy to find yourself misusing credit cards, resulting in accumulating debts and high interest rates. To get out of this, here are three big mistakes you need to avoid:
Missing payments or delayed remittances
Anytime you miss a payment, or even delay it by a day, the consequences will not be good. You will be charged late payment fees, which further increase the amount owed. You can even be reported to credit agencies, further complicating your financial abilities, and bad credit can remain with you for up to five years.
Carrying over a balance
Make sure you pay the credit card balance in full. There should be no carry overs, as they go towards increasing the amount owed. Since the balance increases, the interest payable also increases. Pay the balance in full to avoid further interest rates than necessary.
Paying the minimum amount
You may be tempted to pay the minimum amount every month, but this will increase the amount of interest payable. You may argue that you are on track as far as repayment is concerned, but you are losing out on reduced interest rates, which you can take advantage of and end up paying less.
If possible, increase the amount paid every month. This not only reduces the amount repaid and the duration it takes, but also the amount of interest charged. With that, you will save some money, which would have gone towards interest payments. If you avoid these costly mistakes, you will be on a path to financial stability.
Disclaimer: The above information is general in nature and not intended to be financial advice. You should consider seeking professional advice before following any suggestions in this blog/website.