Even though I love credit cards because of their many benefits, I understand that they aren’t for everyone.
A family member of mine once struggled with credit cards, and they found that using a cash only budget was the best way to stay out of credit card debt. Fortunately for them, they were able to recognize their credit card mistakes and found a way to make sure they weren't adding any debt. Part of that was being proactive and noticing they had an issue with them early on.
However, others are not as lucky.
Some people rack up large amounts of credit card debt, and they do so because they aren’t aware of the credit card mistakes they might being making. According to a study done by NerdWallet, the average household in the United States (who has debt) has an average credit card debt of $15,482.
When you add that all up, it equals $927 billion worth of credit card debt for American consumers. They break this down further and show that the average U.S. household pays around $900 in annual interest. Also, 41% of consumers say they go into credit card debt because they are spending more than they can afford, and 33% say they are adding to their debt because they can’t cover their monthly expenses.
To add to those statistics, the National Foundation for Credit Counseling released their 2018 Financial Literacy Survey and found that one in four Americans don’t pay their debts on time, one in 10 have debts in collections, and 38% of Americans carry debt from month to month.
I find these statistics incredibly saddening, especially when some of this debt is completely avoidable.
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What I find so upsetting about these statistics is that credit card debt is what leads many to living in a debt cycle, which leads to stress, depression, frustration, and more. No one should live like that if they can avoid making many of the credit card mistakes I’ll cover today. Also, credit card debt will keep people from getting out of a paycheck-to-paycheck lifestyle, saving for emergencies, retiring early, and more.
While there are some instances when using credit cards may be a necessity, it sounds like many could avoid much of this credit card debt in the first place. Also, know that there are always ways to make extra income so you can pay off your debts and avoid adding debt all together.
Even if you are one of the many people making some of these common credit card mistakes, it’s never too late to make a change for the better. And, if you’re one of the many people deep in credit card debt, there are always options. While you may feel depressed or frustrated with your debt, there is always a way out.
Here are the top five credit card mistakes that lead to debt. Read below so that you can learn about the possible mistakes you may be making.
1. Ignoring the terms.
Before you sign up for a credit card, you should understand all of the common terms. Sadly, many people do not fully understand credit card terms and that's a leading cause for why some fall into credit card debt.
You should do your research and understand:
- Interest rates and how they work.
- Minimum payments, which you can read more about below.
- What happens when you only pay the minimum payment.
- How your credit card use impacts your credit score.
- What 0% interest might really mean.
- How to avoid getting into trouble with rewards cards.
- And more!
While these things apply to all credit cards, not every credit card is the same. So, you should know and understand the terms of each of your credit cards to really avoid this credit card mistake.
I know that the process of researching and understanding these basic credit card principles may seem like a lot of work, but if you don’t understand how your credit cards work, you may wind up in debt or farther into debt than you already are.
Your credit cards can work for you if you are careful, but if you aren’t, they can wreck your finances and your future.
2. Buying items when you can’t actually afford them.
Credit cards are not free money, but too many people treat them like they are. If you are using a credit card, you should always make sure that you have the money in cash or in your personal bank account before you think you can afford something.
That jacket, dress, video game, and so on aren’t worth the debt that they may accrue if you use a credit card to purchase them without really being able to afford it. A simple $50 dress may balloon into hundreds of dollars of credit card debt because of interest fees.
If you are finding that you are struggling with whether or not you can afford something, there are several things you can do.
- Wait 24 hours, at least, to make that purchase.
- Think about the other things you could use that money for.
- Think about how much time you will have to work to pay for it.
- Think about whether you’ve made a similar purchase that you’ve regretted.
If you just take a minute to think about those four things, you may realize that you can’t actually afford the purchase in the first place.
If you are wanting to get better about tracking your spending, check out Personal Capital. This free online tool tracks your purchases, your debt, investments, and more.
3. Forgetting to pay your credit card bill.
This credit card mistake is one that always shocks me. Even if you have the money to pay your credit card balance in full each month, that’s only good if you remember to pay your bill each month. I honestly can’t tell you how many people have told me that they don’t remember to pay their bill each month. And, many of these people could have paid the balance in full!
Paying your credit card bill late can lead to many problems. It can lead to late fees, added interest, and it can negatively affect your credit score.
If this is one of the credit card mistakes you are making, you can set up reminders on your phone, put due dates on your calendar, and more.
4. Paying only the minimum payment each month.
This is probably one of the most common credit card mistakes. Some make this mistake because they don't have the funds to pay their full credit card balance each month, and if that’s the case, you may want to find ways to better assess your purchases before you make them.
Others only pay the minimum because they believe that's all they need to pay in order to avoid interest charges. YES! Many people actually think this, and this is why #1 in this post is so important. Everyone needs to fully understand what “minimum payment” means and what happens if that is all that you pay.
Here’s a basic breakdown of what minimum payments are:
- Minimum payments are basically the smallest amount your lender will let you pay each month.
- Minimum payments lead to paying more in the long run because of interest charges.
- While minimum payments may keep you in good standing, they can affect your overall credit score.
You should always try to pay more than the minimum. If you do not, you will have to pay interest charges, which may inflate your credit card debt significantly each month.
PAYING ONLY THE MINIMUM IS NOT ENOUGH PEOPLE!
5. Spending money you normally wouldn't spend in order to rack up credit card rewards points.
Credit card reward points are great, but if you spend more than you can actually afford so that you can earn “free” vacations, gifts, and more, nothing is actually free.
Some will spend more money than they have so they can reach the spending requirement needed to earn rewards points. Remember, though, those rewards are only rewards if you are using your cards responsibly.
If this is one of the credit card mistakes that you are making, this can spiral out of control if you do not keep track of how much money you are spending.
To successfully churn credit cards, you must have good to excellent credit scores, have your finances already in order, and have great organizational skills. If that doesn’t apply to you, you can always work on improving your credit score and your financial situation, which starts by first learning which of the above credit card mistakes you might be making.
Do you have credit card debt? Have you ever been guilty of making any of these credit card mistakes?
If you do not know your credit score or are interested in learning more, please check out How Your Credit Score Affects Your Life + Credit Sesame Review. It includes a link to Credit Sesame so that you can check your credit score safely for free.
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