10 Credit card mistakes
Whether you're in a
financial crunch or just lack a second Ferrari, credit card offers landing in
your mailbox might look like an answer to a prayer.
Don't succumb to
temptation, says Cate Williams, vice president of financial literacy for Money
Management International in Chicago.
"The first thing
consumers need to do is walk from their mailbox to their shredder," says
Williams. "A new credit card might give you that sparkling feeling for
about 24 hours, but as a way to clean up your finances; borrowing money to pay
back other money is not a solution."
Experts’ advice can
steer you away from the top 10 credit card mistakes.
1. Getting too
many
Bypass the shredder and you could make one of the most common credit card
blunders by collecting too many credit cards.
"Ask you,"
says Williams, “‘do I need another credit card?' Probably 95 percent of us
don't need another one to keep in the sock drawer or in the little metal box in
the kitchen."
Howard S. Divorcing,
founder and president of Consolidated Credit Counseling Services, a nonprofit
debt management company in Fort Lauderdale, Fla., agrees. "The worst
mistake is that people don't know when to stop. Too many credit
cards are not a good thing."
Even if the cards have
zero balances, multiple open accounts could cause a lender to question what
could happen if the account holder gives in to temptation and maxes out on all
that plastic.
2.
Misunderstanding introductory rates
But, you argue, that new
card will help you manage your money better because you can transfer other
balances to a no-interest account. Welcome to credit card mistake No. 2: being
misled by introductory rates.
"People don't look
at what the rate's going to be once the teaser is over," says Daniel
Wishnatsky, certified financial planner and owner of Special Kids Financial in
Phoenix. "The assumption is that it's going to be a reasonable rate. But
with these particular loans, it's not unusual for it to go up to 18 to 20
percent. They're surprised six months later when it expires. But if they'd done
their homework, they wouldn't be."
3.
Not reading the fine print
that homework is reading the offer's fine print. Not doing so is credit card
blunder No. 3.
That tiny text insert is
where you'll discover when the zero-percent or very l own interest rate
expires. It's also how you can find out about any balance transfer fees,
as well as any offer limitations. In most cases, the introductory rate applies
only to balance transfer amounts or new purchases for a certain period of time,
says June A. Schroeder, a CFP with Liberty Financial Group Inc. in Elk Grove,
Wis., a private financial planning and advisory firm.
4.
Choosing a card for the wrong reasons
you might be tempted to ignore the fine print because the card has other
attractions, such as a rebate or rewards program. Don't, or you'll
make credit card mistake No. 4: choosing a card for the wrong
reasons.
"Credit card
granters are not a consumer's friend. It is a business," says Divorcing.
"They don't know what's right for you. Their job is to extract as much
money from you as they can. Your job is to not let that happen. People need to
go through and find a card that's right for them. There's every sort of card
out there -- points, cash back, donations to your college."
5.
Not rate shopping
Look for the best possible interest rate. Not shopping around is credit
card mistake No. 5.
It's especially
important to note the rate on unsolicited offers. If you're struggling
financially, you're not likely to get the most favorable rates or terms. You'll
be paying higher interest rates. So comparison shop for a credit card.
6. Making minimum
payments
OK. You do need another card. You read the fine print, you completely
understand the terms and you got a competitive rate. But even after choosing
the perfect credit card, people still make mistakes, such as No. 6 on our list,
making minimum-only payments.
"Credit cards are
not a form of supplemental income," says Divorcing. "They're for
convenience, and should be paid off at the end of every month. Paying the
minimum is not going to get you anywhere. It's going to get you in trouble, that's
where it's going to get you."
And it's going to get
you into trouble for a long, long time. "People don't realize how
difficult it is to pay off loans at a high rate," says Wishnatsky.
"You're going to be paying it for your next three lifetimes."
CreditCards.com's calculator can
show how long it will take to pay off a bill if you send only the minimum each
month.
7. Paying your bill late
making late payments, blunder No. 7, is better than not paying at all, but not
by much. Not only will you face a late-payment charge, which could be higher
than your minimum payment, your tardiness will show up on your credit
report, damage your FICO score and make it harder to get better terms
for future loans and accounts.
Check your account
statement for the due date and make sure you send your check in plenty of time.
But the date alone isn't enough, says Liberty Financials Schroeder. Some
companies have cutoff times. If your check arrives on the 22nd as required, but
in the afternoon mail, your payment is counted as late because your account
terms called for payment by 9 a.m. that day.
If you've set up an
automatic payment via your bank, make sure the time and date are taken into
account, says Schroeder. And find out your bank's payment policy when the due
date falls on a weekend or holiday.
8.
Ignoring your monthly statement
you can avoid late payments by checking your credit card statement. Not doing
so is mistake No. 8. Checking your statement will help you pay your bill
promptly, as well as allow you to make sure that the charges on it are
correct. "In these days of ID theft, you need to check your bills
religiously," says Schroeder. And you need to do so as soon as the
statement arrives. If you wait too long to dispute a charge, says Schroeder,
"You’re essentially accepting it."
9. Exceeding your credit
limit
checking your statements also can keep you from exceeding your credit
limit, mistake No. 9. "If you're near the top of your credit limit, try
really hard to pay in cash for subsequent purchases or get an increased credit
line," says Schroeder. "If you don't, you'll get over-the-limit
charges, which are costly and look bad on your credit report."
10. Buying things you
don't need
Careful statement examination also could prevent the 10th credit card blunder,
using plastic to purchase things you don't need. “Go over your credit card
bills every month and you'll be amazed at the number of items that, upon
reflection, you could have done without," says Wishnatsky. "It's
surprising how many purchases we make that we think are needs, but is impulse
buys."
The Phoenix financial
planner tells his clients who are considering a significant purchase to wait 48
hours, if at all possible. "If you still want it, wait another 48
hours," Wishnatsky says. "Then if you have to get it, then get
it."
Also use your statements
to help you create a budget. Wishnatsky realizes many people cringe at the
"B" word, but he says control of your spending and your credit card
usage doesn't have to be a way to deprive yourself. Instead, it can be a way to
make things happen in financially positive ways.
"Once you get
control, even to a degree, it frees you from this constant money worry,"
says Wishnatsky. "You might find there are things that you can actually
end up having if you just have a plan, if you get your financial desires in
tune with your financial resources."
