Credit cards can be a beautiful thing. They’re easier to handle than cash, make purchasing a breeze and allow you to finance purchases. But as great a tool credit cards can be, there’s also the potential for people to get themselves into trouble.
Luckily, poor credit card management really boils down to five simple mistakes that, if avoided, can help keep you out of debt. Here are those five major mistakes.
1. Only Making the Minimum Payment
While that $30 monthly payment might be super manageable, only making the minimum payment on a credit card means you’ll be in debt longer and owe more interest. Not only that, but the more you use of your available credit, 30% of it or higher, the bigger the negative impact it may have on your credit score. Always strive to pay more than the minimum payment (I usually suggest paying at least double).
2. Jumping at Every Rewards Card Offer
Chances are, you’ve probably been offered a discount on your purchase if you sign up for a store credit card. While that discount might seem nice at the time, retail cards often have some of the highest interest rates and fees. Always make sure you read up on the details of a card before applying and ask yourself why and when you’ll be using it. Opening a card just to benefit from a discount or to rack up points may not be the best tactic if you plan to carry a balance. If you carry a balance, the interest charges will almost definitely outpace the discount or rewards you receive.
3. Ignoring Your Statements
Whether it’s because of laziness or fear, ignoring your credit card statement can lead to you falling into debt, or worse. Your statement is essentially a snapshot of your credit behavior for the past month. Reviewing it regularly can help you identify poor spending habits, inform you of your balance, and enable you to spot mistakes and stop fraud.
4. Chasing Interest Rates
Let’s face it: One person’s get out of debt strategy can be another person’s shell game. Transferring your balance to take advantage of another card’s introductory low interest rate might seem like a good idea, but if you’re not careful, it could cost you more in the long run. Not only will you have to deal with a hard inquiry on your credit report and a balance transfer fee, if you don’t pay off your balance before the introductory rate period expires, you’ll be forced to deal with a new — likely higher — interest rate. You may be better off reducing your monthly spending and paying off the original card as quickly as possible (this free calculator can help you come up with a plan). It might be hard work, but it could save you a lot of headaches.
5. Carrying a Maxed-Out Balance
Just because you have a credit limit of $5,000 does not mean you should be carrying around a $5,000 balance. Carrying a balance that is more than 30% of your total credit limit can start to chip away at your credit score, which means higher interest rates on other purchases down the road and costing you more in the long run. If you find yourself carrying high balances, plan to pay down your debt as quickly as possible and consider giving the cards a break for a while. If you’re not careful, that balance could eventually catch up with you, and you may find yourself struggling to pay it (and the accumulated interest) off. If you want to see how your credit card balances – and other factors – are affecting your credit scores, you can get your free credit report summary on Credit.com.
When it comes down to it, most people’s problems with credit cards stem from the mindset that a credit card is synonymous with cash. However, it’s important to remember that a purchase made with a credit card is done so with borrowed money — and like anything borrowed, it needs to be given back. Keep that in mind, and avoid making the mistakes I listed above, and you’re on your way to building – or maintaining – good credit.
- How Many Credit Cards Is Too Many?
- What to Consider When Applying for a Balance Transfer Card
- How to Opt Out of Mailed Credit Card Offers
- The Easiest Credit Cards to Get
This article originally appeared on Credit.com.