These are some of the most common mistakes with using credit cards. These mistakes are easy to make and they can be very costly for your personal financial situation. If you are new to using credit cards make sure you avoid making them.
1. Withdrawing Cash on a credit card
If you withdraw cash on a credit card, you will pay the highest interest rate of upto 21%. Avoid at all costs withdrawing cash on a credit card. For example, avoid buying foreign currency on a credit card because this is the same as withdrawing money. Plan ahead, if you need to borrow cash, find any alternative to using a credit card to borrow.
2. Late penalties
If you forget or make a late penalty for your credit card, you will gain a negative credit on your credit card. This makes it difficult to get future credit. You will also gain a penalty of between £20 and £50. Furthermore, if you have any special introductory rate such as 0% balance transfers this will be lost, and the balance will be charged at the S.V.R. This is a real disaster; avoid this eventuality by setting up a direct debit.
3. Not Challenging your credit company.
Suppose you miss a payment by one day and all the above happen. It is an even bigger mistake not to do anything about. If you can write a nice letter explaining why the payment was a day late, they may agree to ‘forget’ the late payment. Always give it a go, you have nothing to lose and a lot to gain.
4. Ballooning debt.
The real problem of credit cards is that it is tempting to build up debt without realising how difficult it is going to be to pay it back. The problem escalates the more debt we have. This is because we can find that the monthly repayments take all our disposable income, therefore, we have nothing left to make additional payments. If debt and interest payments start to become too difficult to pay, the sooner you act the easier it is. You may need to make radical changes to start paying off interest plus capital. Even if this requires a second job or significant changes to our spending.
5. Paying debt at 17% when it could be transferred.
If you have debt at the highest rate, you need to look very carefully whether it can be transferred to a lower interest rate. It may be possible to transfer it to a new credit card and get upto 12 months interest free. These provide great opportunities to make payments to reducing debt, rather than just the interest payments.