How to avoid credit card pitfalls
Credit cards are wonderful things, they offer great rewards for our spending, they make life easier because you can use a little card to buy things, and not have to run to the bank for cash, keep track of your checks, or even have the money in your account yet. The problem is, with all of the great things about credit cards come some bad. The pitfalls of credit cards are hard. The problem with credit cards is if you screw up it can sometimes take years to get things right again. So, let's take a look at what the pitfalls of credit cards are, and how to avoid them:
1. Spending more than you have to spend. One of the best things about credit cards is that they allow you to spend money that you do not have. This is also one of the worst things. Occasionally we all find times when we have not yet made a deposit, or it is easier to buy something before our check comes, or maybe we just want to have the credit card because we can buy things without paying for them for a month, which helps you earn interest elsewhere. The point is, one pitfall is spending money you do not have, and most importantly will not have. If it is Thursday and you get paid Friday, and you need to buy groceries, so you put them on a credit card, but pay if off as soon as you get paid, that is one thing. But, if you really want a wii, and do not have the money for it, so you put it on a credit card, that is another. So, how can you avoid this pitfall? For one, keep the limit low. Even if you qualify for a fifteen thousand dollar credit card, do you need one? Keep your credit card limit at less than what you spend in a month typically. So, if your normal expenditures and bills in a month cost you $6000, make your limit be only $5000. This way you literally can't spend money you don't have. You can still in some ways, but not so excessively that you have problems. However the best way to avoid this pitfall is to not buy something until you have cash in hand for it, even if you buy it with your credit card.
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2. Introductory offers. One of the luring aspects credit cards use is 6 months interest free, or something like that. The problem is that once that 6 months is up, if you do not have the money to pay off the card, you do pay interest. So, the way to avoid this pitfall is to make payments for the credit card to yourself. You should not pay it off while it is interest free because you can use the money somewhere else to earn you interest, such as in a savings account. However, it will cost you if you can't pay it off. So, to avoid the pitfall of maxing out cards during the introductory period then paying interest through the nose on it later, make your payment to a high interest paying account, and then at the end of the introductory time, make a withdrawal and pay it off in full.
3. Rewards. Buying something just for the reward does not make sense. If you get a credit card just to take advantages of rewards you are falling into a big pitfall. Those rewards are offered as a way to get you to use your credit card in hopes that you will over-spend, not be able to pay it off, then pay high interest, which is far more than the reward is worth. So, enjoy the rewards, but as just that, a reward. Do not buy something on credit if you have cash in your wallet too, just because you get a reward, unless you intend to take that cash to the bank right after and deposit it into an account that you use to pay off your credit card.
4. High balance, high interest. One of the problems with credit cards is the interest always starts out low, then sky rockets. This is a pitfall because it means you rack up a big balance while it is low and think little of it, then pay through the nose for it later. So to avoid this pitfall simply be sure to pay your balance off at the end of each month so that no matter what the interest rate is, you aren't paying any interest, and no finance charges either.
