Credit cards can be a useful financial tool, as long as you use them well. If you’re new to credit cards, here are some pitfalls to avoid at all costs.
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Many credit cards offer signup bonuses, granting you cash back or reward points for spending a certain amount shortly after opening your account. For example, you can get a new credit card that offers $ 300 cash back for an expense of $ 2,000 within three months of setting up your account.
There’s nothing wrong with looking for a signup bonus, but don’t make the mistake of spending too much money to grab one. If you normally charge $ 1,500 on a credit card over three months, but force yourself to spend $ 2,000 to claim your bonus, you won’t really make any money. If anything, you could end up in the hole. The only exception is if you already have a $ 500 purchase to make during that time, instead of spending $ 500 on additional items to claim a bonus of just $ 300.
2. Make only your minimum payments
Credit cards give you the option of paying a minimum portion of your total balance each month and carrying the rest forward. It might seem like a practical option, but be careful. If you only pay your minimums month after month, you earn interest on your remaining balance. The result? You spend more money on the items you billed.
3. Pay your bills without first consulting your statements
Many people pay their credit card bills every month without actually looking at their statements. Don’t skip it – you never know when your statement may contain a bad or fraudulent debit, and if you don’t fix it, you pay the bill. Plus, you never know when your statement may contain duplicate charges for the same purchase. Read your statement carefully before paying it.
4. Take a cash advance
Many credit cards offer cash advances, and if you need cash in a pinch, this might seem like a good option. But cash advances can be expensive. You usually start earning interest on a cash advance right away, and you’ll likely have to pay a fee to access that money. You’d better find other ways to access the cash when you need it. You might, for example, consider taking out a personal loan instead.
5. Not paying attention to the end of your introductory APR period
Some credit cards come with a 0% APR introductory period during which you won’t be charged any interest on your purchases. It can be tempting to take advantage of this leeway. But these introductory periods don’t last forever, and your interest rate could skyrocket at the end of your introductory period. Make sure you understand the terms of your 0% introductory period before taking advantage of it.
Credit cards are convenient, and in many cases, they reward you for purchases you had previously planned to make. Just avoid these dangerous traps along the way.