Applying for a credit card these days has become a common habit.
However, even if many know about the major downsides of misusing the ‘plastic’, few are aware of some of the less obvious credit card mistakes to always avoid!
While owning a credit card does come with many perks, there are certainly enough disadvantages to make you think twice before using it or even apply for one.
Some might be able to keep the credit card balance under control, but as I often read on many of my favorite personal finance blogs, staying away from credit card debt is way more difficult than it seems!
On a more personal note, I’m 30 and have never used a credit card in my life. I simply decided not to apply for one at all (for now).
Granted, I don’t need to improve credit score or chase after rewards, especially after seeing how easy it is to max out a credit card and get into debt without even being aware of it.
After careful consideration, I found these 4 to be some of the less known credit card mistakes people fail to “recognize”.
4 less obvious credit card mistakes to always avoid
1. Applying for a credit card because of peer pressure
Banks often insist you accept their generous credit card offer. They practically beg you to take it, and if you still don’t accept, they’ll look at you like you’re a neanderthal born in the wrong century.
Has this ever happened to you? Well, it happened to me quite recently.
The bank I’ve been with for years decided to ‘give away’ credit cards, for free (no fees, no maintenance costs, no pressure for 1 whole year!) to their most loyal customers.
When my answer was no, they insisted by showing me how easy it is to buy the latest iPod, latest smart TV and a bunch of other items.
Everyone has them, right? Why wouldn’t I want the latest gadgets, everyone buys them! Everyone!
“Except for me”, came the reply. And, of course, quickly came theirs: “You’re kidding.”
I definitely refused to get a credit card just for the sake of buying stuff I don’t actually need.
Yes, I do have friends who own smart TVs and have tablets for each member of the family. I even know people who have a whole techy system installed in their shower. So?
Peer pressure is the worst reason to do anything.
My parents used to have a saying: “if everyone jumped off a bridge, would you follow them?”
Related article: Stop keeping up with the Joneses. Become them!
2. Relying on your credit card for emergencies
One of the great perks of having a credit card is being able to max it out. However, it’s not a really great advantage if you’ll get into serious debt because of it.
One of the less known credit card mistakes is relying on your credit card limit for emergencies, instead of saving money ahead of time!
Say your car breaks down and you can’t drive to work anymore. Or you get an unexpected bill you can’t afford to pay right away. Or you suddenly need dental surgery that’ll cost you an arm and a leg (like it happened to me a few years back).
Unfortunately, not many people think about starting an emergency fund.
Saving money on a regular basis might be difficult when living paycheck to paycheck, so many rely on their credit cards for unexpected expenses.
However, few think about the serious consequences that could affect their budget for years to come.
If you can’t save for an emergency, you probably won’t afford to pay off your credit card debt in time either.
Before you apply for a credit card, thinking you have so much ‘available funds’ ready to spend if something urgent comes along, think about how are you going to pay the money back!
A credit card limit is not really your money! Maxing out credit cards comes with serious financial consequences!
3. Paying for every day purchases with your credit card
Do you have a paycheck? Well, learn how to budget so you could take full advantage of the money you earn on a regular basis.
It’s very difficult to keep your spending under control if you keep relying on a credit card for everyday purchases. And it’s even more difficult to pay of credit card debt if you’ll ever get into trouble!
Not only that, but why pay interest on regular items you could easily pay for with your regular salary? Leave your credit card at home and use your debit card instead!
Better yet, use cash to pay for everything you buy. Personally, I only use my debit card to pay for groceries, for everything else I make an effort to use cash and stay within our budget limit.
Grocery shopping, utility bills, rent or mortgage payments, you should learn how to pay for them from your salary and avoid paying interest or risk getting into financial trouble.
Related article: Learn how to budget money in 5 easy steps.
4. Cancelling a credit card
Say you’re fed up with having to pay your credit card debt every month, are constantly tempted to spend more than you can afford, so you just decide to cancel your credit card and be done with it!
You’d think it’s the easy way to go, but cancelling a credit card can actually have negative consequences!
First of all, have you read your credit card contract? All of it? Even those details written in very small letters?
There are strict rules about cancelling a contract and it’s always wise to read them attentively before making any rash decisions.
Often times, cancelling a credit card could negatively affect your credit score.
If you still have a balance or debt to pay off, it’s better to leave those credit cards open.
Also, if you’re looking to improve your credit score, it’s better to just keep your credit cards, as long as they add points to your credit score.
Do you recognize yourself in any of the above?
How did you manage to avoid making certain credit card mistakes?
Gonna disagree with you on the everyday purchases. IF (and ONLY IF) you can track your spending and keep your card paid off, then accumulating points/cash back/etc by buying everyday things you need to buy anyway can actually save you money. We do it all the time.
But:
a) we never carry a balance, so no interest.
b) we pay on time, so no late fees.
c) we don’t buy anything extra.
d) we track all purchases, regardless of how we spend it.
I think your point about closing credit cards is good, with other caveats, especially if you have no annual fee. But not all credit cards are equal, and if you have one with a big fee or high interest rate, you might be better off closing that puppy.
You make a good point. I was looking at it from the opposite angle, the one where you abuse the credit card for each purchase. I’m not much of a spender, but I know it’s easy to get carried away and overspend. Or even forget about a purchase you used the credit card to pay for. You’re right though, if you’re extra careful, credit card debt shouldn’t become an issue.
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