Credit card mistakes and traps to avoid

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Most people don’t get into serious credit card debt overnight. Instead, things slowly go wrong until they realize they have a serious problem.

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The first credit card mistake is ignoring your card and balance. Your debt may be somewhat serious and not that small.

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If you have ended up in credit card debt, it can feel overwhelming. While it can be painful, make sure you find and track all your debt.

The good news is that credit card debt is almost always manageable if you have a plan and take disciplined steps to reduce it.

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To avoid credit card trap

Seventy-five percent of Americans claim they don’t make a big purchase on their credit card unless they can pay it off right away. Yet by looking at actual spending behavior, more than 70 percent of Americans have a balance, and less than half are willing to disclose their credit card debt to a friend.

Those numbers are a sign that American consumers are embarrassed by their debt levels, says Greg McBride, senior vice president, Bankrate’s chief financial analyst. “They are more willing to give their name, age, and even details of their sex life than they are to provide the amount of their credit card debt,” he told me.

Really? Do they have sex? If it’s you then let me know. I have some single friends who want to meet you.

This shame means that people in debt often do not educate themselves to stop this madness. Many people use credit card scripts to normalize their debt in their daily lives. Instead, they fall prey to nefarious company practices, including credit card traps, that prey on the uninformed and undisciplined. These companies have become very good at extorting more money from us, and we have become very bad at knowing enough to say no.

Should I pay off my credit card in full?

For example, the number one mistake people make with their credit cards is carrying a balance, or not paying it off every month.

Astonishingly, of the 125 million Americans who have a monthly credit card balance, only half pay their minimum monthly payment. Sure, it’s tempting to think that you can buy something and pay it off little by little, but because of credit cards’ extremely high interest rates, this is a critical mistake.

Let’s say it again: The key to using a credit card effectively and the number one credit card rule is to pay off your credit card in full each month. I know I said that casually, the same way someone would ask you to pass the salt, but it’s important. Ask your friend with $12,000 in credit card debt how it went. Chances are he’ll shrug and tell you he’s decided to make “just the minimum payment” every month.

I used my credit card for everything and made the monthly minimum payment. That plan left me with a max out card. I opened new 0% balance transfers to try to pay off the debt. Since I was in over my head and didn’t have an emergency cash fund, I used the credit cards I really needed. I can think of just about every major creditor you can think of, and still do. The interest on my loan crushed me. Just because you have space on the card doesn’t mean you have space in your budget!!!!

—David Thomas, 32

I’m not going to go into detail at this point, but how many people do you talk to without knowing how much they’ll actually pay once they find out the interest? Will be surprised.

Paying the minimum amount on your credit card is the equivalent of growing up a little boy, letting school collect his lunch money on the first day of school, then coming back every single day with his pockets loose.

Not only are you going to get your ass kicked, but it’s going to happen again and again. However, by learning how the system works, you can figure out how to avoid the traps of card companies and get out of debt more quickly.

“The Moment I Realized I Could Pay My Debt”

I asked my readers about the moment they realized they could pay off their debt. Here’s what a handful of them said.

The turning point for me came when I got serious with my girlfriend. He earned about a third of my earnings, but almost a year’s salary was saved. I was ashamed to have $40,000 in debt, so I started applying IWT principles to pay off the debt, and within two years it was done.

-Sean Wilkins, 39

Debt was something I had become “accustomed to” – my lifestyle was short-lived and reactive rather than planned. I was so used to living paycheck to paycheck I hadn’t experienced the freedom of being able to make conscious financial choices. Now money is a tool, not my slave master.

—Dave Winton, 34

Oh man, the debt absolutely sucked. I remember crying about it (many times). I had debt for all the college in the state, my $9,000 boob job, my $3,000 mattress, and my daily mall shopping spree habits. I was very sad and clueless. Your book was one of the first books I bought when I decided to turn my life around, and it really woke me up. I felt money coming into my life just reading this, haha. I am now completely debt free and have started a Roth IRA.

—Stephanie Ganowski, 27

I lacked confidence and felt it was holding me back from taking advantage of what life had to offer. After reading IWT (and now living debt-free!), I feel more confident and spend money on experiences, people, and assets that I value.

—JustineCars, 28 Pay Off Your Credit Cards Aggressively

If you’ve found yourself in credit card debt — whether it’s a lot or a little — you have a triple whammy working against you:

Firstly, you are paying a lot of interest on the balance you are carrying.

Second, your credit score is affected—30 percent of your credit score is based on how much debt you have—you may need to try to get credit and pay even more to get a house, car, or apartment. Putting down to try is because of your bad credit.

Third, and potentially most damaging, debt can affect you emotionally. This can overwhelm you, causing you to avoid unpacking your bills, leading to more late payments and more debt, falling into a vicious cycle of doom.

When should I pay off my credit card?

It’s time to make sacrifices to pay off your debt quickly. Otherwise, you are costing yourself more and more every day. Don’t avoid it, because there won’t be a magic day when you’ll win a million dollars or have “enough time” to figure out your finances. You said that three years ago! Managing your money should be a priority if you ever want to be in a better position than you are today.

Think about it: Credit cards’ high interest rates mean you’re paying exorbitant interest on any balance you have. Let’s say someone has $5,000 in debt on a card with a 14 percent APR. If Dumb Dan pays the 2 percent monthly minimum payment, it will take him more than twenty-five years to pay off this loan. No, that’s not a typo—it’s actually twenty-five years! Throughout the process, he’ll pay more than $6,000 in interest, which is more than the principal amount he spent. And that’s assuming he doesn’t take on as much debt, which you know he will.

If you’re angry, you should be: This is how people can spend their entire lives in credit card debt. you can do better.

The Difference: When You Pay Off Your Credit Card

Conversely, Smart Sally is troubled by her debt and decides to go aggressive to pay it off. She has a few options: If she pays a certain amount of $100 per month, she’ll pay about $2,500 in interest, leaving her debt-free in six years and 4 months.

It shows why you should always pay more than the minimum on your credit card. Doing so also has an added benefit: it fits beautifully into your automation system, which is explained in Chapter 5.

Or maybe Smart Sally decides to pay a little more – let’s say $200 a month. It now takes him 2.5 years to pay off his debt, which includes about $950 in interest payments. All from one tweak to its payoff. Or what if Smart Sally gets really aggressive and pays $400 per month? Now she’ll pay off her debt in a year and two months, totaling more than $400 in interest payments.

This is more than just paying $100 or $200 more per month. Don’t have $200 extra? How about $50? Or even $20? Even a small increase in how much you pay each month can dramatically reduce your time to go debt-free.

If you set up automatic payments (which I discuss here) and reduce your debt, you will no longer pay fees. You will not pay finance charges. You will be free to grow your money looking forward. In the eyes of credit card companies, you’d be a “deadbeat,” a curious nickname they actually use for customers who pay on time each month and therefore generate almost no revenue.

You will be useless in the sight of the one who is best in me. But to defeat them, you have to prioritize paying off what you already owe.

I was in debt for four years in college and I was sure I would pay off easily once I started working. I did spring-break in Las Vegas, Mexico and Miami. I bought Manolo Blahnik shoes. I used to go out several nights a week. Little did I know then that I would spend the next five years after college paying off that debt—five years in which I couldn’t vacation, couldn’t buy fancy shoes, and couldn’t go out at all. So the day I sent my last payment to my credit card company, I decided that payment would be my final one. I promised myself that I would never go into debt again.

—Julie Nguyen, 26 FAQs on Credit Card Mistakes to Avoid H3: What’s the Most Common Problem with Using a Credit Card?

Paying your card late or partially. Late or missed payments may result in higher fees. This is a common credit card mistake that usually happens when you don’t make payments on time. There may also be consequences for not paying your card in full.

What are the risks of a credit card?

The risk of damaging your credit score. Credit cards have an impact on credit. Use your card properly and you can raise your score, but if you make a mistake — like missing a payment by 30 or more days — your credit score will drop.



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