Avoid Costly Mistakes That Credit Card Users Keep Making

Credit cards are becoming more and more popular among the Indians with time. While more and more numbers of people are now getting a credit card for themselves, expecting to save from rewards, there are those who are managing multiple credit cards at the same time. This is fine up to a certain limit and till serious mistakes are not made.

Unfortunately, people are into making some mistakes with their cards. And these are causing stress as well as long-term credit issues.

We'll be discussing most of these possible credit card mistakes here, so you better understand where you're being faulty and how you can improve to maximize savings.

Mistakes Often Made by Credit Card Users

Here's a list of mistakes often made by credit cardholders:

Going Beyond the Credit Limit

When using a credit card, it is recommended that you use it wisely. Budgeting is a very important step and one should not spend over 30% of his/her credit card limit offered by the lender. People make the mistake of overspending.

The problem this creates is a high repayment amount to be paid later by them. They put themselves in high-interest debt, getting tempted with the card in hand and forgetting that they will be paying the same back with interest added to the original amount.

It is recommended that you keep a strict monthly budget to keep the card usage in limit.

Paying Just the MAD (Minimum Amount Due)

Paying just the MAD is getting yourself into a trap. You may find it an appealing option for now, but it comes with a heavy price in the long run. This is because you have to later pay the whole amount anyways, and you pay the same with higher interest rates. The outstanding amounts keep getting carried forward and keep getting charged higher rates of interest.

It is always best to make full payment in each billing cycle a few days ahead of the due date. If unable to make the entire payment, pay more than MAD till you can, so that lesser outstanding amount will be carried forward while you work to bring a balance.

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Missing Dates of Payments

Another mistake is failing to pay till the due date. This results in penalties, plus you have to pay the repayment amount as well, along with all applicable tax and interest.

Noteworthy, prefer to pay a few days before the due date and not even on the due date. This is because paying on the due date may also take time to process and result in late fee penalty. You can choose the auto-pay option to ensure timely payments, or set reminders. However, again, ensure that the account balance has enough balance for the auto-payment.

Multiple Credit Cards Forcing You into a Debt Trap

Managing many cards can result in confusions and missed/late payments. It increases the chances of errors.

It is better to avoid getting more cards till you have stably paid the existing ones. You can make multiple payments by sitting and organizing the priority cards that need to be paid off first.

Badly Impacting Credit Score

If you do not take credit score seriously, and keep up making mistakes, your credit score will get too low to get you any card or loan further, even when you are in an emergency.

One must make payments in time. You should also be regular with monitoring the credit report to avoid errors and improve accuracy, judge the areas where you are lapsing and fulfil the gaps to enhance your resulting credit score.

Making Cash Withdrawals

Cash withdrawals does not come without charges. There is a fee you need to pay each time you make a cash withdrawal using your credit card. That comes with added GST too, further making you lose money.

While you avoid this, you can also keep an emergency fund or some low-interest personal loan for meeting your urgent cash requirements. Use credit cards for purchases and avoid cash withdrawals at ATMs.

Not Understanding the Reward Structure Carefully

Last on our list of credit card mistakes, is a misinterpretation of the reward structure. The rewards on credit cards vary from card to card. If you do not go through the details completely, you can spend more expecting a high return, but instead incur losses. There are expiry dates, caps and exclusions attached with reward points, cashbacks, offers, discounts, etc. which need attention.

Study the reward structure properly, as your credit card should bring you savings and not be responsible for increasing your expenditures instead.

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