Credit Card Debt: Avoiding Common Mistakes

Credit cards is a widely used form of payment across the world. However credit card debt also tops the list of stressors for individuals in America. Revolving credit card debt can have a negative impact on your finances if you are not taking the right steps in debt management. Consumer credit counseling is often a wise choice when it comes to dealing with paying off credit card debt. However, there are certain things you can do before you get to the point of no return, There are some common mistakes you can avoid to make sure you  are using your credit cards responsibly. Unfortunately, it’s easy to fall into common pitfalls if you’re not careful.

Credit card debt is a financial burden that many people face at some point in their lives. While credit cards offer convenience and flexibility, they can also lead to overspending and high-interest debt if not managed carefully. Whether you’re currently struggling with credit card debt or simply want to stay vigilant in managing your finances, understanding these common credit card mistakes is crucial for achieving long-term financial stability.

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Credit Card Debt - Avoiding Common Mistakes
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Credit Card Debt – Avoiding Common Mistakes

Let’s dig in deep and find out the most common credit card debt mistakes you need to avoid.

Mistake #1 – Too Much Credit Card Debt to Handle?

Not knowing when to stop your credit card spends is the biggest mistake you can make when it comes to accumulating too much credit card debt. every credit card comes with a spending limit. However, this does not mean it is free cash or that you should spend every penny until you reach the limit. You have to  maintain a healthy credit utilization ratio in order to keep your credit scores healthy.

A credit utilization ratio is an accurate representation of how someone uses credit and how disciplined they are. It compares the total amount you owe on all of your credit card accounts to your total available credit limit. Credit counselors recommend that a credit usage ratio of less than 35% is a healthy amount.

Let’s say that the total amount you owe on all your  credit card accounts are:
$1,500 + $4,200 + $800 = $6,500

And each of these credit cards has a credit limit of:
$15,000 + $10,000 + $10,000 = $35,000

Your Credit Utilization ratio is the total amount owed and divide by your total available credit limit as a percentage:
($6,500 / $35,000 )x 100%= 18.5%

It is important that you have an idea of your credit utilization ratio because this has a direct impact on your credit scores. Therefore, you have to be aware of not making the mistake of not spending too much.

Mistake #2 – Not Paying Your Credit Card Bills in Full

Using credit cards as free money for purchases beyond your means can result in unaffordable bills, increased interest rates, excess fees and damage to your credit score. Even worse if you are not paying your bills on time and in full you are making a big mistake.  You are likely in this situation because of two reasons. One, your budget is way off than what you planned it to be and needs to be seriously re-evaluated. Two,  you are not using your credit cards responsibly and stacking up credit card debt that your budget cannot handle.

A fundamental rule of thumb when it comes to credit card use is that you pay them in full and on time. If you keep paying the minimum payment and continue to stack even more debt you are likely going to end up paying more money in interest and other fees. The interest rates on credit cards vary depending on the type of card you have but are known to have higher rates. Therefore, you must stick to how much your budget can handle to spend on paying off credit card debt and spend on what is absolutely necessary. Breaking this bad credit card habit can help you improve your overall finances.

Mistake #3 – Not Paying Your Credit Card Bills on Time

Paying your credit cards in full and paying them on time are both equally important. Credit card companies work on a cycle and each of your credit cards have a due date to make your payments. If you do not make your payments by the said due date you are likely to be charged with late fees from the credit card companies. This mistake can cost you extra money that you can put towards your other financial goals. These late payment records can also go in your credit history impacting your credit scores. Therefore, this is not something you take lightly.  You can set up automatic payments to your credit cards by linking your accounts and set reminders to ensure that you don’t make this mistake.

Mistake #4 – Too Many Credit Cards in Your Portfolio.

Having the right amount of products in your credit portfolio is really a fine balancing act. Too much or too little can impact your credit health. Closing or cancelling cards can have a negative impact on your credit health as much as opening too many credit lines too soon. Every time you open a credit card the creditors will do a hard inquiry on your credit report. The more times you do this the more hard inquiries resulting in temporarily lowering your credit score. Keeping unused credit cards open is advisable. This maintains a longer credit history and increases available credit  two factors that influence your credit score. Just always be sure to use your old cards periodically to keep them active, regardless of the transaction amount, and monitor them for potential fraud.

Mistake #5 – Not Paying Enough Attention on Credit Card Security

You may have heard many situations where retailers or organizations send out mass communications on data breachers. Credit card information is vulnerable to such data breachers as the information is quite widely available to be stolen. Therefore, taking necessary steps to safeguard your card is important. Always monitor your transactions and notify your creditors of any suspicious activity.

Mistake #6 – Not Reading the Fine Print

When you choose a credit card always make sure that you choose one that fits your needs. Credit card companied offer competitive benefits to attract customers. However, some of these benefits come with hefty annual fees and other conditions. If you are a frequent traveler, choosing a card that gives you more travel benefits may suit you well than the others.  If you depend on your credit cards to make daily purchases such as groceries or gas, then you may want to look at a card with higher cash back benefits. Whichever card you choose, you have to make sure you read the fine print to make sure you are aware of all of the inclusions, exclusions, fees and other conditions. Information about your payment cycles, rewards benefits,  late charges, and interest rates are all included in the fine print.

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Last Updated on February 13, 2024 by Dilini Dias Dahanayake