Top 3 Common Credit Card Mistakes and how you can avaoid them for improvement in personal finances

Using plastic money instead of hard cash is a good step and a credit card is another way to use Plastic money. But in order to make the best use, we must identify credit card mistakes and tries to avoid them. A credit card is issued by a financial institution with a pre-approved limit, which means customers can borrow money from the institution. A maximum ceiling of borrowing is pre-approved. This limit is based on the customer’s credit score and transaction history.

Many of us are using credit cards for since long but we generally don’t have any knowledge about these credit card mistakes or we simply ignore them. A credit card is such an amazing financial instrument by which we can smoothen out our financial transactions. But to work the credit card in our favor, we must avoid some basic credit card mistakes which also work as identification for a debt trap for us. Credit cards are an excellent medium for having instant credit and saving money through cash backs, discounts, reward points, no-cost EMI offers, etc.

credit card mistakes


Top Credit Card mistakes that should be avoided:

Plastic money i.e credit cards are best for our financial life to the time we use it in a disciplined way. By the disciplined way, I simply mean that we should avoid these listed credit card mistakes and better utilize them in a healthy manner.

Not paying the full Credit Card Bill

A credit card comes with an interest-free period for you to utilize the credit limit and smoothen the transactions. Hence we should take maximum advantage of this interest-free period. But one thing we must note is that we have to pay the bill after this period and we must not delay the payment of the bill beyond this period. The very first credit card mistake people generally commit is not paying the bills completely. Delaying the payment of bills will attract heavy interest over the pending payment and it will also create new issues with it.

The company has a right to block or reduce the interest-free period which in turn will create another hurdle for you. Usually, a heavy interest ranging from 24% to 36% will be levied on your bills if you delay the payment. And if this financial behavior of late payment continues for some months, it will result in a steep increase in the financial burden and can land you in a debt trap.

A trap of Minimum Amount Due (MAD)

If you have observed your credit card bill closely, you would have seen a term called minimum amount due. This term is placed beautifully just below the total amount due in your bill to trap you. Seriously, it is placed there just to trap you and you should read this attentively to find out why I am saying so. People generally think that they will avoid the extra charges by just paying minimum dues instead of the total amount due.

But you must have one thing in mind, paying the minimum amount will only save your card from blocking and nothing else. Additionally, it will keep on piling the debt burden on your bill which you have to pay and can not avoid at all. You must pay your bill in complete and should not even look for this minimum amount word or else you will regret it at a later stage. Let’s understand it by example:

⇨ The minimum amount is 2% of the outstanding balance and if suppose the outstanding balance on your credit card is 5000 Rs then the minimum amount is 100.

⇨ Now if you want to pay a minimum then these 100 rupees will not be deducted from your outstanding balance as a whole.

⇨ A finance charge will be made by the company to the consumer which is @1.5% of the outstanding balance ( 1.5% of 5000 = 75 Rs. )

⇨ This Finance Charge amount will be first deducted from the Minimum amount due. So here first this 75 will be deducted from the minimum amount i.e 100.

⇨ Now the remaining 100-75 = 25 Rs will be reduced from the outstanding balance.

⇨ So the outstanding balance for the next month will be 5000-25 = 4975 Rs.

⇨ So now you can see, how this cycle will continue for years if you are opting to pay the minimum amount each time and you will end up paying heavy money in terms of charges to the company.

⇨ That is why I request that you please pay the full outstanding amount as soon as possible if possible.

Use of Credit Card as an ATM

The credit card comes with a credit limit as you all are aware but you must have witnessed that it also has some cash withdrawal limit on it. Actually cash withdrawal limit is nothing but a ceiling above which you can not dispense cash by using your credit card. That means it incites you to use your credit card for cash withdrawal, but I must strongly suggest you not attempt it. Never ever use your credit card as an ATM as it will attract heavy charges from you in your monthly bill. Finance charges in using credit cards as ATMs can go as high as 36%.

How to save yourself from these Credit Card Mistakes

For god sake, please be disciplined in your financial life and pay your credit card dues in time so that you don’t have to read this section of my blog. Yet, if you committed any of the credit card mistakes mentioned above, you must correct yourself as early as possible so as to save yourself from a bigger debt trap. Once you did credit card mistakes, you can not escape from the debt but yes, you can get out of these traps efficiently with minimum stress. You can adopt any of these methods to safeguard yourself from the financial burden:

Use of EMI option against Credit Card

If you think that you will not be able to afford particular transactions but it is necessary for you to make, it is better to pay that amount in easy monthly installments. You can adapt this technique but it is a high charges practice that generally need not be followed if you can pay the bill in sum total. But you must be aware that the company will be charging interest over those monthly installments and you should pay every due timely.

Moreover, closing those EMIs before the time period is also an expensive process because you will again be charged if you asked the company to pay the remaining EMIs in one go and close it. You can be charged 3% extra of the remaining EMI Total with all its taxes just to close it before the stipulated time.

Credit Card Balance Transfer

A balance transfer is another good option available to you as a customer if you are not able to pay the bill on one credit card. Through this option of the balance transfer, you can transfer the unpaid amount to another credit card of another bank. The amount will be added to the monthly bill of that card and in this way, you will get some more time to manage the money and clear your dues. Transferring the balance is sometimes offered free of cost (i.e without any interest) while sometimes charged by other banks and it purely depends on the other bank.

Some credit card companies promote this scheme of balance transfer by offering EMI conversion on this transferred amount. You can use this facility if you are not in a position to repay the entire sum in one go, but you must go through all details about EMI discussed above. But this facility of a balance transfer can be availed only for up to three months which means you have to clear all dues within the next three months at any cost.

We must avoid these basic credit card mistakes which work as a debt trap for us and these mistakes also attract many other issues such as downgrading your CIBIL or credit score. Having a good credit score is an important prerequisite for you to apply for other credit tools like loans. Your credit history will be checked by the bank and if your CIBIL score is found below a limit, you will be disapproved for your loan application. So, you should keep checking your credit score by visiting the official website of CIBIL for your current state.

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Final Words:

Credit Card mistakes discussed in this article can affect your scheduling and personal finance.  The payment of the Minimum Amount Due (MAD) is the most committed mistake by consumers and it attracts heavy interest rates. Hence, it is advised to refrain self from doing such mistakes.

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