Things like earning cash back, reward points that can be redeemed for the latest 50” television, or racking up enough miles to fly to Europe could be what attracted you to a credit card. Or it could be that the card helps you plan your finances and can be your best friend. Whatever the case, it wouldn’t be incorrect to say that with friends like these, you don’t really need enemies because it can also be the reason for you spiraling into debt.
While you may have been told multiple times that the biggest no-no with a credit card is not paying your bills on time, there are actually other things you should never do with your card as well.
To ensure that your card remains your friend and to avoid silly credit card mistakes, here are some things that you should never do with a credit card:
Thinking of your card as a source of free money
With a credit card in hand, it’s easy to lull yourself into a false sense of financial liquidity. You suddenly have the ability to buy whatever you want, whenever you want. If you aren’t careful, however, you may end up spending way over your budget. Which is why it is extremely important that you don’t think of your card as a free source of money.
Always remember that you are not spending the money that you currently have, you are spending money that you could potentially have.
Charging your rent or mortgage payments to your card
In some cases, you may be able to charge your mortgage payments and rent to your card, but it is never a good idea. The cost of doing this far outweighs the benefits.
Let’s say that the rent you pay each month is $1,000. You will be charged an additional amount for the convenience of paying rent with your card. If we assume that amount to be around $25, then the total amount you are paying is $1,025. In your next billing cycle, you will be charged for this amount and if you don’t pay on time you will end up incurring high rates of interest.
Similarly, with mortgage payments. If you don’t pay your bills on time, you are not just paying the interest on your mortgage, but also on your credit card. This will also lower the credit amount that you are eligible for.
Cryptocurrency is simultaneously the best commodity in the market that could also be a bubble waiting to burst. There is no denying though that investing in cryptocurrency is on the rise. Most digital currency coin exchanges will allow you to use your credit card to make cryptocurrency purchases. But here is why you shouldn’t:
A reliable currency exchange will charge you fees that can amount to 3.99% of the amount that you charge to your card. Moreover, if you are buying the currency on an exchange outside of the US, you will also incur currency conversion charges. You may think that you can make your card payment by selling your cryptocurrency at a hefty profit. However, remember, that this market is extremely volatile. If the value of the currency falls, then all you are left with is a hefty credit card bill.
In fact, not just cryptocurrency, but no trading should be done using your credit card.
Forgetting an old card
If you own multiple cards but usually carry and use only a few, then it is extremely easy to forget that you own the card and not keep an eye on any account activity. This could cost you because you may miss out on when the annual fee is applied. In this case, you will not only be charged late payment fees, but also interest. Moreover, this will be reported to the credit bureau and your credit score will take a beating. All of this without you even being aware of it happening.
It’s very easy to get caught up in the world of rewards and cashbacks that credit cards offer you and even easier to get into debt. But if you use your card judiciously and keep in mind these 5 points, your credit card can indeed be your best friend!