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Credit Card Mistakes That You Must Avoid

Usually we don’t realise, but credit cards can be extremely dangerous to our financial health. Therefore, as the use of credit cards proliferate, it is important for everyone to be aware of the pitfalls and avoid them as far as possible. This is in our best interest.

While a credit card is a nice tool of financial convenience, its’ improper selection and usage can cause some serious financial damage.   

Here is a list of some common blunders people usually make with their credit cards. We must make sure not to repeat them and regret about it later.

A. Not looking around for the best cards
We generally do not do any comparative analysis of the various cards available in the market. Whenever any bank sends its’ sales representative, we quite often apply for the same. We don’t bother to check the fee structure, the interest rates, the ‘real’ benefits it can offer to us or any other terms & conditions.

There is wide difference between various credit cards in terms of the initial fees, annual charges and the interest rates. This, especially the interest charges, can make a substantial cost saving if we choose our card carefully.

Sometimes the ‘low rates’ or ‘no annual charges’ may be just an introductory offer. You will be in for a shock when the bank reverts to its’ normal rates after the offer period ends.

B. Not considering the need for the card
Usually 1 or 2 cards are more than sufficient. But many of us tend to collect cards. It is seen as a status symbol if you are carrying say 5-6 credit cards in your wallet, especially the so-called Gold or Platinum Cards. But this is a false pride. Is it worth paying thousands of rupees in annual charges for something which you don’t really need?

Also, if you have multiple cards, it is quite likely that you could miss some payments as it is difficult to keep track of so many bills – month after month. This is assuming that you have sufficient money to pay-off all the bills. Often, multiple cards also increase the tendency to overspend. This means you won’t have sufficient cash to pay your bills on time. Using the card is quite simple, but when it comes to payment it can get pretty serious.

C. Not paying the bills on the due date
This is the recipe for DISASTER. The interest rates on credit cards are EXORBITANT ranging anywhere from 2-4% per month i.e. about 24-48% per annum. By no stretch of imagination is this cost worth paying for.

Credit cards don’t charge you anything if you are paying ALL your due amounts on the due date. But the day you default even a small amount and carry forward some of your balance, you
a)      not only start paying the exorbitant interest charges
b)      but also lose the benefit of the interest-free period on all outstanding and future purchases
c)      and also become to liable to pay 12.36% service tax on the interest amount, which increases your overall interest cost to 27-54%.

Therefore, make very very sure that you don’t carry forward any outstanding balance; ever. Paying the ‘minimum amount’ may sound very good and convenient, but is a catastrophe in reality.

D. Using your credit card as an ATM card
While buying something on the credit card, you still have time till the due date to pay-off without any interest charges. This is no so when you withdraw cash with your credit card. Here your interest meter starts from that very day. And, apart from the interest charges, a fixed fee is also usually charged per transaction.

Therefore, don’t ever use your credit card at an ATM to withdraw cash, unless it is a STRICT EMERGENCY and you have exhausted all other options.

E. Not reading the fine print in the offers
“Conditions Apply” should always the first thing you must read in any offer. This is where most people get into a problem. All offers like cash-back, free miles, bonus points, discounts, etc. will have some conditions.

Besides, if anything sounds too good to be true, you must double check the terms of the offer. Credit card companies are not a charity organisation; they are a proper business. And no business would like to give away anything free or cheap, where it loses money. So the onus is on you to see whether you are eligible for the offer and, more importantly, does it really benefit you.

F. Going over the limit
Each credit card specifies a certain limit upto which you can run-up your balance. Thereafter, even if the bank allows you to exceed the limit temporarily, you may be liable to pay over-limit charges.

Many people are not aware of this. They assume that once they have been permitted to exceed the limit there will be no additional charges. So you need to double-check this point for your card.
G. Using your credit card overseas
Surely a credit card is very convenient when you are traveling abroad. But it comes with a sort of hidden cost i.e. exchange rate. Given the exchange rates that are generally charged for overseas transactions on a credit card, it will usually work out cheaper to carry the travellers’ cheques/prepaid forex cards.

Also, a stolen credit card is relatively easier to use than stolen travellers’ cheques. Besides, the travellers’ cheques/prepaid cards are for a fixed amount, but a credit card could be used upto your credit limits. So from safety point of view also, credit cards should be avoided when going abroad.

These common mistakes have cost others’ very dearly, even to the point of financial ruin. It therefore makes ample sense for us to learn from their experience and save ourselves from all the potential loss and trouble.

An Investment In Knowledge Pays The Best Interest ~ Benjamin Franklin

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