“The whole point of credit cards, the way they are rendered most profitable, is that we dig ourselves into debt and stay trapped there forever.”
~ BRETT WILLIAMS, Debt For Sale
The mass introduction of credit cards in the 1960s changed the personal finance landscape forever. If you ask an 8-year old kid, he would define a credit card as a magical piece of plastic that could buy as many candies as you want. However, it never stops at the candies, and you end up buying pretty much everything with it.
According to CreditCards.com, the national average credit card interest rate is 14.95%, and for individuals with bad credit, it may run as high as 23.64%. In 2014, an average American household had $15,611 in credit card debt and $155,192 in mortgage debt.
A majority of people find it difficult to keep their credit card balance under control. If you are among them, there is good news and there is bad news. The good news is that you can get rid of your credit card debt by following a systematic approach of debt reduction. The bad news is that if you do not reduce your credit card debts, you will likely end up paying higher interest rates in future.
5 Credit card mistakes that you need to avoid at any cost
- Paying the minimum necessary payments- One of the easiest ways to accumulate credit card debt is to make minimum payments only. For a standard Citi credit card, it could be anywhere between $20 and $30 per month. You may realize that a higher minimum payment might penalize your savings now, but it will save you from paying heightened interest rates in future.
- Ignoring a credit card billing statement– How often do you read your credit card statement? Ignoring your monthly billing statement will leave you unaware of the latest credit card charges or stop you from tracking any fraudulent activities on your account. Set a date in advance for reading your credit card billing statement thoroughly every month.
- Topping maximum credit card limit- Do you know that using more than 30% of your credit card limit could trigger lower credit ratings? If you are habitually maxing out your credit cards, you might end up paying over-the-limit fees in future. Further, it will hurt your credit score and you will not be able to enjoy lower interest rates in the future.
- Applying for multiple credit cards simultaneously- If you are putting up multiple applications for credit cards, you are unknowingly undermining your credit score. You might even notice an increase in rejections over a certain time-period. Applying for multiple credit cards simultaneously reflects weak financial circumstances.
- Missing payments- This is probably the worst thing to do, and it will increase your credit card bill exponentially. For instance, a credit card with a 13.24% annual percentage rate will charge 29.99% APR after missing one payment along with a late fee of $35.
If you miss 2 or 3 consecutive payments, you will be paying up to 3% of outstanding balance in late fees. Make sure to pay your bills on time and, usually, you will receive your credit card bill 21 days before the due date. It is best to set a particular date for clearing your credit card bills.