A swipe here or a swipe there– credit cards have become an integral part of our lives. But be warned- those simple swipes can turn into a great, big financial disaster if you’re not careful. March 21st is National Credit Card Reduction Day and financial professional Paul Durso from Durso Capital Management joins us to warn people about 5 things NOT to do with your credit card.
Q: Why do we need a day to remind us to reduce our credit card debt?
- Credit card debt has become a huge issue for families across the country. The average household with credit card debt has more than $16,000 racked up!
- And that’s at a time with interest rates hitting record highs! The average annual percentage rate (APR) for a credit card is 15.36%.
- What that means is Americans are getting into debt and digging a deeper and deeper hole by not paying it off.
Q: What do we need to avoid?
- There are 5 costly credit card mistakes that you should be aware of and resist.
1.) Making only the minimum payment
- This is one of the most common costly credit card mistakes because it is something that people don’t really catch until it’s too late.
- Having large amounts of debt at the end of the month leads to higher interest rates; paying only the minimum every month could mean it will be months or even years before you can get the card entirely paid off.
- Though it feels like you are doing something good for yourself by paying at least the minimum, in the long run, the amount needed to pay off credit will increase exponentially.
2.) Missing payments
- Missing payments can seem like a minor mistake at first, but the interest rate on the card—because of late payments—can grow dramatically and can ultimately hurt your credit score.
- Once you are overdue by more than 60 days, you will begin to experience the negative effects of not paying off your credit card. At this point, issuers will most likely report you to credit bureaus, flagging you for future loans.
- If you miss payments, interest rates will most likely increase, burying you in more debt than you already were in.
3.) Taking out cash advances
- When you use your credit card to take out a cash loan at an ATM, there is no grace period—meaning interest starts accumulating right away and it adds up quickly.
- Making even small purchases, like gas or groceries, with credit turned cash can be easily forgotten and will sneak up on you if you are not careful.
- There is also a transaction fee of 3-5%, so it’s costing you right off the bat.
4.) Opening too many accounts
- More credit cards equals more opportunities to get into debt, creating more stress and anxiety.
- Having too many cards can be hard to manage and negatively affects your chances for future loans.
- Too many credit cards can look to creditors like you are in desperate need of fast cash, and they could be reluctant to loan you money.
- While there is no magic number, having 3-5 credit cards is manageable, but anything more than that can be hard to keep track of and makes it easier for you to dig yourself a hole.
5.) Closing credit card accounts
- Although you don’t want too many credit cards, think twice before closing old accounts.
- Old credit card accounts look excellent on your credit score because they show loyalty and responsibility. Closing the accounts early shows risk to creditors.
- If anything, keep the account and hide the card.