The credit card has quickly become one of the most popular go-to items of credit. There are a number of reasons for this however many put it down to their flexibility. There is a credit card to fit almost any financial need ranging from establishing a good credit score to earning cashback or rewards on transactions.
Despite the various positives of credit cards, they do also have their downfalls. Many have found themselves in thousands of pounds worth of debt as a result of credit cards. Arguably this is not the fault of the credit card but instead the way in which they have been managed by the cardholder. Throughout this article we are going to discuss five of the most popular credit card mistakes outlining how they can be avoided.
1. Having too many cards
Having multiple credit cards can quickly lead to financial problems, especially if you are taking out credit cards to consolidate current credit card debt. Not only this but it could affect your chances of being approved for credit in the future.
Firstly, from a financial point of view if you have multiple credit cards it can very tough to track how much you’re spending on each one and indeed when the monthly payment is due. While you may be able to afford to pay off each of the cards, you run the risk of forgetting and leaving them unpaid.
From a credit history point of view, having multiple credit cards can lower your score and damage your chance of being approved for credit in the future. Even if you’re not using the cards, this will be viewed as available credit, meaning the temptation is always there to simply max out the cards if you ever needed to.
2. Not choosing the correct card
As I outlined above, there are a number of different types of credit cards each designed to fit a different financial situation. It is very important that you choose a card that suits YOUR financial needs.
For example, just because a card offers 5% cashback on transaction in the first three months, it doesn’t mean it is going to be suitable for you. This is because the effectiveness of cashback cards hinges on the cardholder’s ability to repay the balance in full each month; failure to do this could mean that the interest you are being charged on the balance may outweigh the cashback you are earning.
Equally, applying for the wrong card could lead to the application being declined. If your credit history is poor and you are applying for a low rate card the chances are you are going to get turned down.
3. Only making the minimum payment
One of the great things about credit cards is that you can pretty much choose how much you repay each month, providing you meet the minimum payment. However the problem with this is that many fall into the trap of only ever making the minimum payment.
Why is this a problem? Well, while it may seem like you are taking small chunks of the balance, realistically interest is accruing at almost the same rate as you are paying it off meaning you may only really be clearing a few pounds each month. With this being the case you could find yourself burdened with debt for decades!