Credit cards can be a handy way to pay for things and build your credit score, however if they aren’t used correctly, they can end up costing you a lot of money and leave you with a truck load of debt.
Unfortunately, there’s a real lack of education and understanding about the best way to use credit cards. As of 2022, there were more than 13 million credit cards in Australia, with a national debt accruing interest of $17.8 billion!
At Fix My Credit, every day we talk with people who have struggled with credit card debt and hear the mistakes they’ve made. We don’t want you to fall into the same trap, so here are the most common mistakes people make when using credit cards.
The first mistake people make with credit cards is not shopping around for the best deal. You don’t have to apply for a credit card with the same bank that looks after your transaction accounts, it can be completely separate.
When choosing a credit card there’s a lot to consider, including interest rates, annual fees and rewards. Some people are lured in by one-off rewards or offers, only to be hit with high interest rates or annual fees further down the track. It’s important to work out how you plan on using the credit card and what type of card will work best for your circumstances.
Spending more than you can afford is probably the most common mistake people make when using credit cards. While it may seem obvious, it’s easy to fall into the trap of spending what seems to be ‘free money’.
Credit cards aren’t designed for long-term debt, they are a short-term lending tool. Over long periods of time, credit card users can be subject to interest rates as high as 20-25% per annum, which on larger credit card debts can add up to a huge amount of interest.
After reaching the spending limit on one card, some people apply for more credit cards. Unfortunately, having too many credit cards and high credit limits (aka a high credit footprint) can be detrimental when you’re applying for other types of loans or credit.
Remember, even if you’ve only spent $1000 on your card, if you have a credit limit of $10,000, this is what will be shown when applying for credit (the whole $10,000).
When applying for additional loans or credit it can be helpful to lower your credit limit and cancel any unused credit card.
While making the minimum payment is okay, when you don’t pay your bill in full you will be charged interest. When you miss payments or only pay the minimum, the debt will add up and take an extended amount of time to pay off.
Many credit card users make the mistake of not understanding the conditions of their credit card. Interest free days aren’t just a gimmick, they can help you to avoid paying additional interest fees.
Most credit cards have 55 interest free days, in which you can pay off your purchases. This starts at the beginning of your billing cycle. Spending money at the beginning of your billing cycle will give you more time to pay off your purchases without additional interest.
Some credit cards allow cash withdrawals, which is withdrawing cash from an ATM using your credit card. While this can be handy, most credit cards have very high interest rates for cash withdrawals and interest will be charged immediately, with no interest-free period applicable.
If you avoid these common mistakes it can be possible to keep your spending under control, avoid credit card debt and decrease financial stress.
With 1 in 5 Australians suffering from the devastating effects of defaults and court judgements, Fix My Credit can assist with credit repair and provide debt solution services.
If you need help fixing your financial issues, contact us online today or call 1300 785 214 to speak to the friendly team at Fix My Credit.
Want to know more? Please complete our quick contact formContact us
We accept referrals from some of the industry’s leading establishments.See Referral Agreement