Credit cards have the potential to be dangerous, especially for new users who may think of the money they’re spending as “free.” There are other credit card dangers that even the most experienced users can fall into. It’s important to note that there is a way to use credit cards responsibly in order to avoid those credit card traps. For more information on credit card danger, see this article.
The Lure of Overspending
Consumers tend to be lured into credit card danger when they spend more money while they’re using their credit cards versus paying with cash, according to some studies. In one such study, participants spent more than twice as much when paying with a credit card versus the amount they would’ve spend if paying with cash.
You can avoid credit card danger and overspending by:
- Setting a spending limit for yourself
- Living within your means
- Setting your limit in accordance the amount you can pay each month toward your bill
Difficult Interest Rates
If you want to avoid credit card danger and interest all together, the best thing to do is pay your balance each month. According to statistics from the American Banker’s Association, only 29 percent of cardholders pay their balance in full each month. I you’re one of the 71 percent who’s not practicing this tip, then a portion of your payments are going towards the interest rate, which increases the amount of time it’ll take to pay off your balance.
How to avoid credit card danger and interest rates:
- Pay your balance in full each month
- Consider spending less
Debt: Are You Risking It?
If you’re borrowing money, then you’re creating debt. Being in debt can lead to an array of problems that aren’t all associated with finances. Debt can lead to health issues, depression, and major stress.
Being in debt makes it harder for you to reach your other financial goals. You may have to delay your goal to go back to school or take that nice vacation because you need to pay your bills.
How to avoid credit card danger and debt:
- Stop using your card
- Focus on living within your means
A Bad Credit Score: Are You Risking It?
Its common knowledge that credit cards have a major impact on your credit score. If you use your credit card responsibly, then your credit score will reflect that. If you’re irresponsible with your credit card, like if you miss a payment, then that will put you into credit card danger and cause you to have a lower score.
How to avoid credit card danger and a bad credit score:
- Pay your credit card bill on time
- Keep balance 30 percent below credit limit
- Make less credit card applications
The False Hope of Minimum Payments
You’re only required to pay the minimum payments, but other than making no payment at all, minimum payments are actually the worst way to pay off your balance. By making the minimum payment, you’re sending more money toward your interest than you should, meaning less of your money will go towards the amount that you owe.
How to avoid credit card danger and minimum payments:
- Pay your balance in full
- Or pay above the minimum payment
Confusing Credit Card Lingo
Although the Credit CARD Act of 2009 has made credit card terms much clearer, the lingo can still be confusing. One credit card has the potential to have many different interest rates. Understanding which rate applies can be puzzling and can have serious consequences like increased fees and/or lower credit scores.
How to avoid credit card danger and confusing lingo:
- Understand balances and rates on your credit card
- Read through credit card information carefully
- Contact customer service if you have questions
Difficulty with Multiple Credit Cards
In order to be financially responsible and avoid credit card danger, it’s important to track your spending. Having multiple credit cards can make this important task difficult to accomplish. This is even truer if you’re using other methods of payment in addition to using multiple credit cards.
How to avoid credit card danger with multiple credit cards:
- Create a journal or spreadsheet to track spending
- Use personal finance software to track spending
- Use fewer credit cards
The Risk of Credit Card Fraud
Everyone who has a credit card is at risk of being a victim of credit card fraud. Whether your credit card or credit card information is stolen this can be detrimental to your credit score. Luckily, you’re not always liable for fraudulent credit card purchases, but it’s important that you report these charges in a timely fashion.
How to avoid credit card danger and fraudulent charges:
- Closely monitor your credit card activity
- Report fraudulent charges immediately
For even more information on credit card dangers, check out this YouTube video: