20 Common Credit Card Mistakes
Posted February 20th, 2011 and last modified July 4th, 2011While it is wonderful to have a credit card, you should be careful to use it in a wise and responsible manner.
There are many advantages to having one but without the proper use, you can easily become mired in something that has grown out of your control. Follow these credit card tips to help keep you from making very common and typical credit card mistakes.
20 Costly Credit Card Mistakes
Understand how to avoid the worst credit card mistakes. Use this information to create best practice in your credit card activities.
As useful as credit cards can be, anyone making the following credit card mistakes is going to cost themselves money and may even land themselves in some serious financial difficulties:
- DON’T treat your credit card like it is cash!
- DON’T take cash out!
- DO pay more than the minimum!
- DO pay on time!
- DO ask for help!
- Paying interest
- Making cash transactions
- Spending for rewards
- Being a tart
- Having too many cards
- Making purchases on a balance transfer card
- Treating store cards as credit cards
- Ignoring personal loans
- Failing to compare the market
- Avoiding or Misunderstanding the Fine Print
- Enjoy a generous 2.9% p.a on balance transfers for 12 months*
- *Balance transfer will cease to proceed if full balance is not paid off each month. Any remaining balance will be reverted to the standard interest rate of 18% p.a.
- No annual fee*
- *No annual fee when you spend $35,000 or more on your credit card per annum. Standard annual fee of $140 applies otherwise. Excludes first year annual fee.
- Treating store cards as credit cards
- Enjoy a generous 2.9% p.a on balance transfers for 12 months*
- *Balance transfer will cease to proceed if full balance is not paid off each month. Any remaining balance will be reverted to the standard interest rate of 18% p.a.
- No annual fee*
- *No annual fee when you spend $35,000 or more on your credit card per annum. Standard annual fee of $140 applies otherwise. Excludes first year annual fee.
- Condemning yourself into Balance Transfer Hell
- You have a high balance on one of your credit cards. You transfer that balance onto a new credit card with a balance transfer offer.
- Wanting to reduce your credit card debt/management as much as possible, you cancel your old credit card to only focus on repaying your transferred balance.
- Over the period of your balance transfer, a couple of emergencies arise and you fall into financial strain. Without second thought you access your transferred balance credit card and cover the issue.
- Picking a Credit Card which Doesn’t Suit You
- You own a ‘Gold’ status credit card, which has a high interest rate, high annual fee and a reward’s program. Fair enough – you pay your balance off in full, and spend on it regularly. This will compensate for the high interest rate and benefit you with lots of rewards.
- However, you never travel internationally, thus rendering your travel insurance and security benefits useless. The cost of these benefits are made up in your annual fee, and therefore you are effectively paying something-for-nothing.
- The solution? There are plenty of regular reward credit cards available which allow you to only pay for the features you use.
- Only Comparing Credit Cards from your Current Bank
- The Citibank Clear Card, Citibank’s flagship ‘low interest rate credit card’ offers:
- 15.49% p.a on purchases.
- A $65 annual fee.
- 0% on balance transfers for 6 months.
- $40 on late repayment and overlimit fees.
- The ANZ Low Rate MasterCard, ANZ’s flagship ‘low interest rate credit card’ offers:
- 11.99% p.a on purchases.
- A $58 annual fee.
- 0% on balance transfers for 6 months.
- $20 on late repayment and 5% on overlimit fees.
- Not Checking your Statements and Recent Transactions
Your credit card is loaned money and should be treated as such. If you use your credit card like it is an endless supply of cash, you will get into trouble very quickly. You need to remember that is it borrowed money and that each time you use it, you are being charged interest for the privilege of doing so.
Now, if you are stuck and in an emergency then taking out a cash advance makes sense and is acceptable. However, if you simply want to go shopping or want to make some frivolous purchases with the money you have taken out on a cash advance then you will be in for a surprise when you receive your next credit card statement. The rates for taking out money on your card are much higher. Not only will you be charged a fee for taking the money out, the interest is calculated at a significantly higher rate than other transactions.
You will receive your statement each money which details how much you are expected to pay. This is the minimum payment. It often does not even cover the interest that has accrued from the current month. If you can, pay more than this so you are able to pay off your debt more quickly. If you choose not to, your balance will grow exponentially.
You will receive nasty fees for paying late on your credit card and you will also receive negative marks on your credit report. It is best to pay your card on time each month and if possible, even early.
Every time you miss a payment, pay late, or exceed your credit limit, you will be charged a fee, and this is also likely to be listed in your credit history.
Everyone gets into trouble at one time or another. There is no shame in asking for help if you need it. It is very easy to get in over your head when it comes to credit. If you see that you are going down that path, ask for some help as soon as you can so you can rectify the situation as quickly as possible.
The biggest credit card mistake is paying interest on your credit card. This is money down the drain. You must try to keep your credit card spending within the bounds of what you can completely pay off each month.
Taking money from an ATM, buying foreign currency or traveller’s cheques, or making any gambling transactions on your credit card are considered cash advances/transactions. You may be charged a fee for these, and you will attract around 20% interest from the moment the transaction takes place.
Rewards schemes are designed to lure the customer to a certain card, and then to get them spending on it. A major credit card mistake is to spend purely to earn points. If this leads to interest charges, your points value is wiped out.
This is the practice of shifting a debt from card to card to take advantage of 0% balance transfer deals. This behaviour cannot last forever, and banks frown on activity of this sort to the extent that you will end up less creditworthy.
You may think it looks impressive to flash an assortment of plastic every time you take out your wallet or purse, but having multiple cards can be more than a credit card mistake; it can be a nightmare. Not only can you easily lose track of your spending until your statements arrive, but your overall credit limit will have been reduced, meaning other lenders may be reluctant to give you money when you really need it.
This is one of the most expensive credit card mistakes if you have a transferred balance still to pay off. Any new purchases will sit accruing interest at the standard rate untouched until your cheaper debt is totally paid off.
Store cards charge horribly high rates of interest. If you do not clear your store card debt every month, you will be hit very hard.
Larger debts that may take years to pay off may be better handled with a personal loan than a credit card balance transfer, especially if you can’t secure a long enough transfer offer
Only 6% of Australians bother to visit a credit card comparison site when choosing a credit card. Even before you get a credit card in your hands, this credit card mistakes can cost you dear because you will have no real concept of what the best deals are.
If credit card features were only limited to the offers displayed in advertisements, then we would all be living in a much happier (and cheaper) world. However, these are only teasers and abiding only by the marketing copy will hit your pocket hard.
A couple of hypothetical instances where you can fall flat on your face by not reading your Terms & Conditions:
If credit card features were only limited to the offers displayed in advertisements, then we would all be living in a much happier (and cheaper) world. However, these are only teasers and abiding only by the marketing copy will hit your pocket hard.
A couple of hypothetical instances where you can fall flat on your face by not reading your Terms & Conditions:
Balance transfers are without a doubt the saving grace of reducing your credit card repayments – when utilized correctly. The most common scenario people fall into when they become hammered by balance transfers is as follows:
When a purchase is made on top of your balance transfer credit card, the transferred balance is essentially ‘locked up’ until the purchase has been paid off. Interest free days are frequently excluded from purchases made on these cards while the introductory offer is being carried out.
The solution? Keep that old credit card instead of shredding it – you never know when an emergency can arise, or the only form of accepted payment for a purchase you want is via credit card.
Other than competition, there’s a reason there are so many different credit card offers available in Australia – different types will suit different individuals and lifestyles. Choosing the wrong card for your finances is like choosing the wrong car for your family. While your brand new 2-door convertible will impress and get from A to B, it’s a tight and uncomfortable fit for your children.
An example which you can regret and end up spending more than necessary:
The days where the time you’ve spent with your financial provider becoming an asset are fast dwindling. By avoiding different banks for credit cards, you’re essentially robbing yourself of potentially cheaper cards. For instance, if you’re a current Citibank customer and are interested in a low interest credit card:
By simply going with your main financial provider’s card, you’re paying more than necessary. Why fill up $1.20 a litre at the closest petrol station when you can pay $1.07 at another station down the road? Let’s analyze one of Australia’s better low interest rate credit cards, the ANZ Low Rate MasterCard. it features:
The ease of credit cards without a doubt is ‘paying with plastic’. If you pay $50 or $200 in cash, you are visually and tangibly spending more money. Pay with plastic and you can bury the price and repayment deep in your mind, and adapt a ‘pay now, worry later’ attitude.
Recently a staff writer at Credit Card Finder® learned first hand the benefit of checking his transactions every couple of days.
“I took a look at my recent transactions online and found out that my most recent $17.20 purchase at a fast-food place also bought an identical debit of $86.40. I was positive that it wasn’t a cash advance, and remember only signing a single $17.20 purchase.”
“The next business day I contacted my bank, (Commonwealth) and explained the issue. I hinted that it could possibly be fraud so they would take the issue as seriously as possible. The woman on the customer service line stated that my dispute would take 6-8 weeks to resolve, and my disputed charge would be cleared from my statement in the meantime.”
“If you delay your dispute for too long, it will become increasingly difficult to pursue and win.” he states.
Following these credit card tips will make it easy for you to keep your head above water and out of credit card trouble.
Mistakes To Avoid When Doing A Balance Transfer
When doing a balance transfer, it’s important you don’t make these common mistakes.
Cardholders saddled with high interest payment on their credit cards look to balance transfer deals to alleviate their credit card debt condition. While there are plenty of offers out in the market, it also implies a higher chance of not picking the right offer out from the bunch. Here is a list of the most common balance transfer mistakes you can make, so that you know what to avoid.
Featured Low Interest Balance Transfer
The St.George Vertigo MasterCard is a low interest balance transfer credit card with an equally low interest purchase rate, making it a great credit card for shopping.
- $55 annual fee
- 13.24% p.a. on purchases
- 0.99% p.a. for 12 months on balance transfers
- Cash Advance Rate of 21.49% p.a.
- 55 days interest free
- Minimum Income Requirement of $15,000 p.a.
Not enough research
Some people, eager to get out of their current card agreement, will pick the first balance transfer card that manages to catch their attention. This is one of the simplest, yet most damaging balance transfer mistakes you can make. By not looking hard enough you’ve probably missed out on a much better deal that would have been more suited to your needs.
Simple market research is therefore absolutely imperative before deciding on a particular card. You can take the help of card comparison sites to get an overview of the features and special promotions currently available. Once you’ve narrowed down your choice to a few cards you should take a detailed look at the terms and conditions of the individual cards. Talk to the card issuer if you have to, and make sure you don’t get caught in the fine print trap.
Not making the transfer in time
There is usually a small time window to initiate the transfer, usually about a month from the activation of your new card. If you fail to specify the balance to be transferred within that time frame you will lose the opportunity. Therefore it is good idea to mention the balance and previous card details right in the application form of your new card.
Transferring to the wrong type of card
If you are transferring your balance to a card with a great reward program or a special cash advance rate, be advised that in most cases you cannot earn reward points while a balance transfer is outstanding. It is also preferable not to make cash advance transactions on this card because of ‘Payment Allocation’ affecting the order of repayments, use a separate card if you have to.
Not taking costs into account
Interest charges are not the only cost of a card, you should compare annual fees and other relevant charges to the card while shopping around.
Choosing the wrong balance transfer deal
0% or low rate balance transfer cards are good for those who can repay the full balance within a short period of time (the introductory period specified). Life of balance cards on the other hand feature the same low rate of interest which is fixed for the duration of the balance, and is ideal for large transfers that will be gradually paid off over a longer period (e.g. more than 12 months).
Learn to avoid all of the aforementioned balance transfer mistakes, and you are on your way to securing the best possible card that fits your requirements.
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