Credit cards can be both a blessing and a curse, depending on how you use them. We’ve all heard of numerous horrors stories about people who have gone crazy with their credit cards, amassing thousands of dollars and even tens of thousands of dollars of debt they can’t really afford. With some careful financial planning and some mindful spending, credit cards can actually be an asset to your financial world: you get a higher level of security against fraudulent spending on your card, you can use them for online shopping and of course the points and loyalty systems in place.
In order to make the most of your credit cards, you need to know what NOT to do with them. Here are some common mistakes people make with credit cards:
Thinking Their Credit Card Limit is Their Money
I’ve had a number of my friends, who are broke, consider their available funds on their credit card as their available money for spending. When I recently I applied for a credit card, I logged onto my banking to see that my available funds had jumped by a whopping $25,000! It made my total account balance look pretty amazing, but the truth is – that’s not my money. It’s money I could borrow, but I’ll have to pay back. Don’t make the mistake of thinking your credit card’s available balance is money you have to spend – it’s not. It’s debt you have the option to incur. Be very clear in your mind about that.
Using A Credit Card As A Deposit On More Finance
So now that we’ve cleared up the fact that the available balance on your credit card is just potential debt you can incur, please remember it’s a bad idea to use your credit card as a deposit to finance something else. Many people wonder whether it’s a good idea to use a credit card as a deposit for car finance and the answer I have for you is a resounding: “NO!”. If you use your credit card as a deposit for any type of financing, you’re essentially getting yourself two loans. Credit cards have a large interest repayment rate which can often be disabling, especially for large sums of money.
If you really need to finance something but don’t have the deposit, you would be much better of getting a low interest loan from a bank. Personally, however, I wouldn’t finance anything especially if you cannot afford the deposit.
Missing Credit Card Repayment Dates
It doesn’t matter if you only have a tiny bit owing on your credit card, missing credit card repayment dates can be devastating for your credit rate. There’s nothing worse than missing them if you have the money for them, just because you simply forgot. If you don’t log into your banking very often, you can either set up a small automatic payment to go on your credit card or you can set a reminder on your phone or calendar to make a payment when it’s due. This might seem like overkill, but your credit rating is something that will affect you when the time comes to apply for a mortgage, another credit card or a loan.
I am a firm believer in only buying what you can afford and this has prevented me from getting into any credit card debt. However, I routinely use credit cards to my advantage. If you want to make the most of your credit card, ensure that you avoid these common credit card mistakes.