Credit Cards and the Common Mistakes Made Using Them
Since December 2004, there have been more credit cards in the UK than people. Used wisely, they are a valuable budgeting tool and a great opportunity for the card holder to manage their money. However, not every user is wised up to good credit card management.
Know your Limit
Any money spent on a credit card is a loan, and a loan has to be repaid eventually. Credit card companies often award card holders high spending limits to encourage them to use their card more. Don’t fall into this trap. Set a limit on monthly spending and stick to it, and don’t spend money that cannot be repaid within a given period of, say, six months. Every month, interest will accumulate on the credit card balance, and debts quickly mount up, especially if the card has a high APR.
Credit not Cash
A credit card offers the option of withdrawing cash, but very often the borrowing rate for cash is much higher than for purchases. The same applies to any credit card cheques the company send, often attached to the bottom of a statement. Shred these cheques; they are expensive and unnecessary.
Minimum Payments
All cards insist on a minimum repayment of up to 5% of the balance. However, repaying just this minimal amount will not pay off the balance, and interest will accumulate on the balance remaining every month. Failure to make the minimum payment will result in a card being frozen, and will affect credit ratings. Set up a Direct Debit for the minimum payment each month, and then pay off as much of the balance as possible by either cheque or bank transfer.
Late payment
Late payments are a road to disaster. Create a Direct Debit for the minimum payment each month, and then pay off as much of the balance as possible by either cheque or bank transfer. This ensures payments continue to be made, even if the card holder is away or simply forgets.
Keep your receipts
Credit card transactions come with a seemingly endless supply of paper slips, but it is important to keep these safe. File them safely at home, not in a wallet or purse, and check them against the statement each month. Be aware that PDQ receipts still often have the full card number printed on them, so NEVER put receipts in the bag with purchases. If a thief gets the bag, he gets the credit card details as a bonus.
Check the statement
Make sure that the credit card statement tallies with the receipts filed for that month. Check every entry and make sure it is for the right amount. Report any mystery or inaccurate entries to the credit card company immediately so they can investigate. If all is as it should be, tear off the payment slip on the statement bottom and make the payment. When payment has been received by the credit card company, shred both the receipts and the statement, unless needed for any business accounts.
Associated Card Products
Credit card companies take great delight in ringing customers at home and offering them extra insurance or special deals. Nine times out of ten these are expensive and often unnecessary. Ignore the calls and visit a financial advisor for free at any bank to assess any insurance needs.
Expired Credit Cards
When a new card arrives, make sure the old one is properly destroyed. Simply cutting them in half is not enough; cut them into tiny pieces, put some of the pieces into the rubbish on the morning of collection, and keep the rest until next week, and repeat. Always cancel, then destroy any credit cards that are no longer used.
Duplicate Cards
Tempting as it may be to give a partner, child or friend a second card on an account, don’t. Not only might they spend their way into debt, but it then become the card holder’s debt, not theirs. The card holder will be responsible for repayment, and failure to do so will adversely affect their credit rating.
The Buck stops Here
Remember, careful use of a credit card and protection of security information relating to it such as PIN numbers are the legal responsibility of the card holder, not the credit card company.
This article is based on the writer’s own research and in no form constitutes financial advice. Readers should always conduct their own research into any financial option, based on their own specific circumstances.
Individual credit cards and their rates quoted are correct at time of writing, but may be withdrawn by the credit card company at any time. Always check with the company concerned for their current deal.
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