Christmas is just around the corner and everyone is busy bustling and preparing for the season to be jolly. Whereas getting caught up in the frenzy of the holiday season is fun, it’s crucial to look ahead and plan for the New Year.
No one wants to ‘wake up’ with a terrible debt hangover after the holidays. If you’ve got big plans for 2019, you’ve got to make sure that you don’t overindulge during the holidays.
Credit cards are amongst the top inventions in money technology of the last century. You’ll not find credit cards on Tim Hartford’s top 50 inventions that changed the modern economy.
However, we all agree that credit cards have influenced consumer spending in unprecedented ways. They make buying stuff – whether at the store or online – the easiest thing to do. Plus, they come with loads of benefits and are an excellent way to build your credit score.
Be that as it may, this piece of plastic “magic wand” can also be the source of untold misery.
Irresponsible consumer spending through credit cards is responsible for unfathomable levels of bankruptcies in America. If you are not careful with it, you could end up in a debt trap which would torpedo your credit rating.
But, you can avoid all these money-catastrophes by using your card right and avoid the following ten worst credit card mistakes this holiday season.
1. Late Payments
Everyone likes some extra cash, especially during the holidays. But, take extreme steps to avoid dipping into your credit card payment budget for that extra cash. In the thick of the holiday season shopping and other bills, it’s easy to miss out on a credit card payment, but this will attract a late payment fee of up to a whopping $38!
Moreover, you’ll have to pay exorbitant interests and your credit score will take a 50 to 100 points hit!
Therefore, whatever you do, make sure you don’t exceed your credit card payment budget or miss out on paying your bills on time.
2. Making Minimum Repayments
Credit card companies have made it easy to repay your card balance and continue using the card. Simply by making the minimum payments on your credit card bill, you can continue using it.
A closer look at how minimum payments are structured will show you that although card management is more comfortable, it is not a smart move.
It’s a paradox, and you know it. The ‘comfort of making minimum payments’ will keep you hooked on debt. Instead, you need to feel uncomfortable with that balance hanging over your head.
When you make the minimum payment on your credit card not only do you stretch the time for paying off your credit card balance but also increase the overall interest you’ll pay on your credit card bill.
If you want to be safe this holiday season, don’t settle for just the minimum payment (unless it’s part of a grand get-out-of-debt strategy). Instead, make yourself uncomfortable and increase your monthly payment. It’ll help you pay off the balance sooner and lower your interest cost.
3. Using a High-interest Credit Card (and Deferred Interest Cards)
Credit card companies know that a high APR is an instant turn-off for potential clients.
So, what do they do?
They disguise high APR under the camouflage of 0 percent intro-APR cards. But, it’s hard for an average person to tell what qualifies under the 0 percent intro APR. You’ll need to double check the fine print.
Many credit cards with 0 percent intro APR are often accompanied by restrictive clauses which limit the type of transactions that qualify for the special rate. For instance, you could land a deal of 0 percent intro APR on a balance transfer card. However, the 0 percent offer would be applicable for balance transfers only. Any new purchases charged to the card your card will attract interest unless paid-off by the due date.
The same goes for deferred-interest cards. You can carry a balance from month-to-month without paying interest, but the balance continues to accrue interest. These card products are structured such that you will only owe the interest on your balance if you don’t pay it off before a predetermined date (upon expiry if the deferred interest period).
If you don’t pay by the set date, the entire interest you’ve accrued, on the compounding balance, over the deferral period will be added to your balance. Deferred interest credit cards may have enticing interest rates, however, if you’re not conversant with the specifics of how such cards work, you’ll end up a huge interest bill which is not what you had in mind.
If you are looking through credit card offers, a check with Credit-land can help you compare the rates.
4. Maxing Out on Your Credit Limit
Last Christmas season, Harris Poll teamed up with Nerdwallet to survey 2,000 American shoppers. The results of the study revealed that a majority (56%) were planning to use credit cards. This year, the number is expected to go higher. Whereas there are many credit card users who intend to pay off their bills in full, overindulgence is not uncommon, and many people often stretch their usage to almost hit the limit.
In addition to needlessly stretching the repayment period and interest, getting anywhere close to your credit card limit is a bad idea for your credit score. If you’re looking to buy a home in 2019 and you are actively trying to enhance your credit score, you shouldn’t be caught anywhere within 10 percent of your credit card limit but you can stretch to about 30 percent of the limit.
5. Opening up a Dozen Credit Card Accounts
If maxing out on your credit card limit doesn’t work for you, you could be considering taking up one or two extra credit cards. Perhaps even three cards or more, after all, there are countless promotional emails clogging your inbox and some of the offers are unbelievable.
As enticing as the new card offers may be, don’t make several credit card applications within a short time. Here’s why.
Each credit card application results in a hard inquiry of your credit report, knocking-off crucial marks off your credit score. Each inquiry, no matter how minute or trivial it may seem, will take out five or ten points from your credit score. Moreover, a sudden influx of inquiries from credit card companies on your credit report will raise eyebrows from lenders who grow suspicious.
Therefore, if you are looking to make some major financial moves in 2019, it’s best you apply for credit cards one at a time as the need arises.
6. Taking out a Cash advance
As Christmas approaches, you may find yourself caught up in a shopping frenzy and run out of cash. However, hitting the ATM for a credit card cash advance or a payday loan is a route you don’t want to take.
There are several reasons why a credit card cash advance is not a good idea, not just for the holiday season but for your debt management. First, you’ll pay extra cash advance fees, then you’ll start paying an impossibly high-interest rate straight away. Worse still, such loans count negatively on your credit score and lenders view credit card cash advances and other short-term high-interest loans as indicators of lack of financial prudence.
7. Lending Out Your Credit Card
You may trust your sibling or you want to develop some responsibility in your child, however, lending out your credit card takes out all your money control defenses. You’ll have no control over what they buy or how much they spend. At the end of the day, the bills will still read your name and it’s your credit score that’s on the line.
All in all, don’t lend out your credit card unless you are ready and able to make full payments for all purchases made.
8. Shopping Online at Unsecured Websites
Cyber Monday is here and the e-commerce craze is getting everyone unsettled. Shopping has never been faster and easier than this, a simple click on your smartphone or on your computer ushers you into a world of variety and unimaginable deals.
Clearly, it is easy to get sucked into online shopping and go looking for deals in all the wrong sites.
But, what about cyber-safety?
A wrong move with your credit card could land you in the paws of hackers who would quickly steal your identity details, impersonate you and max-out your credit card.
As a rule of thumb, stick to reputable stores and ensure the sites are secure. Ensure the website address starts with “https” emphasis being on the “s” which indicates that the site is secured. Alternatively, look for a lock symbol next to the website URL.
9. Take too Long to Report Unusual Activity on the Card
If you notice your credit card is missing, or transactions you cannot recognize on the card, don’t take too long to report the unusual activity. The longer fraudsters have with your card, the more cash they can siphon out.
10. Lastly, Don’t Close Your Credit Card Accounts Irrationally
The ease of access to consumer credit –via credit cards – can be addictive. In fact, psychologists came up with the term Compulsive Shopping Disorder to describe people who have an uncontrollable desire to shop excessively. Beyond the symptoms, there’s often the root-cause which invariably has to do with credit cards.
You could have made any of these ten worst credit card mistakes and you’re struggling with debt today. If that’s you, The Credit People and Credit Repair are excellent partners to help you restore good credit.
However, if your debt levels are not beyond control, tearing up credit cards and closing accounts will seldom help your credit score. On the contrary, you’ll negatively impact the credit utilization and the outstanding accounts will still count negatively on your score. Just keep the card, but make sure that you pay the balance.