No matter the type of credit card you choose or the amount of credit you are granted, poor credit card habits can land you in hot water. If you want to keep your credit card balance under control and your monthly payments manageable, here are some mistakes to avoid:
Paying the minimum
Paying the minimum amount due on your credit card statement is the very least you can do. Anything less will result in penalties, and it will negatively affect your credit score. That said, it's always a good idea to pay as much as you possibly can. If you pay nothing more than the minimum, you will extend your payment period, and this means that you will end up paying for years. Not to mention the fact that you'll end up paying even more on interest each month. It just makes sense to pay off your credit card debt as soon as possible. Sure, you can reuse your card, but you need to be prepared to make significant monthly payments.
Credit card cash advances might sound good when you think about getting all that cash in your hands. That said, the interest rate on these transactions is significantly higher and you will also pay an additional fee based on the amount you withdraw! It just makes more sense to use your card to pay for whatever you can and use any cash you have for merchants that don't accept card payments. Even paying online is a better idea than withdrawing funds from your credit card!
Card companies offer balance protection insurance, and they can make it sound really great at first. They market this form of insurance as a means of repaying your credit card in the event that you are unable to pay due to death, dismemberment, critical illness, or some other disability that prevents you from making payments. In order to reel you in, they lay out all the perks and offer it at a relatively small monthly fee. Many people don't take the time to read the fine print. When reading through the finer details of this policy, it becomes clear that they are paying far too much for something that won't prove as beneficial as they once thought. This is largely due to the fact that the fee is recalculated each month based on the outstanding balance. The more you owe, the higher the fee. Instead of paying this fee every month, you could pay this money into your credit card or at least avoid this additional expense.
Spending too much
Overspending is one of the biggest problems that cardholders experience. Spending more than 30% of your total available credit is ill-advised according to experts. In addition, it's best to keep your spending under control so that you are not forced to only make minimum payments because you cannot afford to pay any extra. Set a budget and stick to it!
Although these mistakes can turn out to be rather costly, they should not make you feel like credit cards are downright bad. Credit cards offer many benefits including extended warranties, various forms of insurance, and even cash back. When used responsibly, you can also use your credit card to build a great credit score. At Wallet Savvy, we offer advice and detailed information on various top Canadian credit cards to help you make the best financial decisions.