Avoiding Credit Card Mistakes

If you've ever gotten into trouble with your credit cards - overspending, making only minimum payments, or having more cards than you can handle - you know the negative emotional and financial impact bad credit card management can have on your life.

Using credit cards wisely can help you avoid some of the credit pitfalls that lead to problems. Here are some common credit card mistakes and how to avoid them.

Having too many credit cards

If you're like most people, you get plenty of credit card offers in the mail or in your email. Don't accept every offer you receive. The trick is to determine not only how many credit cards you actually need, but how many credit cards - and credit card payments - you can actually afford. If you pay your balances in full each month there's no problem; but if you carry balances over time, you must realistically calculate the effect the payments will have on your monthly budget.

Making the minimum monthly payment

Nothing will get you deeper in debt than paying only the minimum monthly payment on your credit cards. By the time interest and fees are added to your balance, the minimum payment will scarcely make a dent in the amount you owe. As more interest accrues month after month, you begin to pay compound interest (paying interest on interest), and it can literally take years to pay off a modest debt on a card. Even if it's difficult, always send more than the minimum payment each month.

Using your credit card for cash advances

Offers of cash advances can be tempting, and obtaining cash from an ATM or by simply filling out a "convenience check" from your credit card company couldn't be easier, but read the fine print in your credit card agreement first. The interest rate for cash advances is usually much higher than for regular purchases. And, all of your regular purchases must be paid in full before any part of your monthly payment applies to the balance on cash advances. That quick cash could end up costing a lot more than you thought.

Not shopping around for the best credit card offers

With so many credit card companies competing for your business, you should shop around to find the lowest interest rates, best rewards, longest grace periods, and lowest fees available. If you're carrying high interest cards, call your credit card companies and ask them to lower their rate. You'd be surprised how often they'll agree, which will save you money that's being spent on interest.

Making late payments or exceeding your credit card limit

Credit card companies report every month to the three credit bureaus: Experian, Equifax, and TransUnion. These bureaus use all your credit information (good and bad) to create your credit report and credit score (which is what every lender uses to determine if they will give you credit). Every late payment will be reported and have a negative impact on your credit rating - and this information stays in your credit file for seven long years. Also, every time you're late on a payment or exceed your limit, the credit card issuer will assess penalties to your account. These fees can add substantially to the amount you owe.