Credit cards are plastic cards that have encoded information (such as your credit card name and number) in a computerized or magnetic strip. They are easy to carry because they conveniently fit into a wallet or pocket. Credit cards are essentially loan facilities that help people to get unsecured short term loans faster and more easily. To get a credit card, you can apply for one with a bank, a financial institution or directly through a credit card provider.
If you want to apply for a credit card, ensure you have enough information about them by reading comparing different credit cards. Credit cards can help you meet an immediate need. However, you should be careful not to fall into some common card pitfalls, especially when you are on a budget.
Here are 5 common credit card pitfalls to avoid if you are on a budget:
- Missing payments
Credit cards allow you to borrow money and enjoy an interest-free period of time. Different financial institution, bank or Credit Card Company offer different interest-free period and different interest rates. If you are on a budget, ensure you pay the loan within the interest-free period. However, if that is not possible, make sure you pay the loan within the given time to avoid late penalties that will only make you spend more.
- Cash advance withdrawals
Shopping online or paying for goods and services with a credit card does not attract an extra fee. However, if you withdraw the money, you will be charged a withdrawal fee and a cash advance fee
- Failure to have a budget
Credit cards are appealing. However, without a proper budget on how the money will be used, most of it may end up in impulse buying or pay for unnecessary services and goods. If you are on a budget, you should also draft out a budget on how you are going to spend your credit card. Do not take more money than you need on credit card.
- Maxing out credit cards
Some people are tempted to use their credit cards because they have a high limit. Maxing out your credit card will not only make you pay higher interest, but it will also hurt your credit card score. The less you borrow the better. If you are on an emergency, spread out your charges in several credit cards to avoid taking a large chunk of money from one credit card.
- Making minimum payments
While taking a loan, your credit card statement will show how much it will cost you if you only pay the minimum amount. This attracts extra charges which may lead to paying more than you currently owe. If you are on a budget, avoid making minimum payments because it means you may end up paying twice what you borrowed. In addition, making minimum payments may send a message to the credit card company that you are in financial constraints and probably sooner you will not be able to pay your bills. This will have a big effect on your credit card score.