Credit cards are part of life for most people these days and most of them offer us some pretty great perks. Providing you use them responsibly; credit cards can be a useful alternative to things like personal loans. Many travellers who consider loans in the Philippines decide to opt for a credit card as an alternative as they can use it to cover the costs of every day living by paying for food, drinks and accommodation with a swipe or a tap. This convenience can come at a price, though and many people end up in serious financial trouble because of the way they use their credit cards. Here is Asteria’s guide to the top five credit card catastrophes you seriously need to avoid:
1. Taking it the Max
There’s a limit on your allocated credit for a reason. When you take into account interest rates, balance transfer fees and other hidden charges, borrowing even a small amount on a credit card can become very expensive, very quickly. When you “max out” your card, you have basically spent the full amount of money that has been allocated to you by your provider. This triggers alerts with most credit agencies and some banks. It isn’t always something to worry about, especially if you can afford to make repayments with a problem, but it can lead to serious issues. If you have more than one card that is up to the maximum limit, the chances are your credit rating will suffer. Your lenders may also be inclined to reduce your credit limit as a precaution. Try to stay within your limit at all times and take advantage of things like apps and text alert services so you can keep track of how much you have spent.
2. The Bare Minimum
We understand how tempting it can be to make the smallest monthly payments possible when it comes to credit card debt. You need to cover your living costs and there’s always something that needs to be paid for. Unless you have a 0% interest rate, minimum payments can actually end up costing you a lot more in the long term. Higher interest cards can end up stagnating for years as customers just about manage to pay off the interest they’re generating each month. Even if you can only afford a small amount more than the minimum amount, try to pay this if you can. Eventually, you will start to see a difference in the overall amount you owe. Credit card companies do notice when you make additional payments, too. As do credit ratings agencies. This means that next you time you get some unexpected extra income, its worth considering making an extra payment to your credit card, rather than splashing out on something unnecessary.
3. Withdrawing Cash Using Credit Cards
This is probably the most expensive way to access cash and in an increasingly digital world, one of the most unnecessary. Most, if not all credit card providers will charge you a fee for withdrawing money from an ATM machine. They will also charge a specified amount of interest on cash that has been withdrawn using this service. If you don’t pay this off quickly, it can spiral out of control before you know it and a small, insignificant purchase can potentially cost you a great deal. Always use this option as an emergency or last resort. Other options such as contactless payments, transferring a set amount of funds to your current account or even using a service such as PayPal can be much cheaper than this convenient but rather outdated option.
4. Missing Your Repayments
This should really be at number one, but we figured everybody would be aware of how serious this is. Missing repayments will not only incur more charges and make your debt worse; it can affect your credit rating and remove any special offers you have arranged with your provider. For example, if you have a 0% interest rate on a credit card that is fixed for a period of time, missing a payment can cause the account to “default” to the standard APR (annual percentage rate) which is usually quite high. (Anywhere between 20 and 50%) Your provider may also be inclined to decrease your credit limit if you forget to make a payment on time. When you sign up for a credit card, you are entering into a legal agreement. By not making payments on time, you are directly breaking this contract, which gives your creditors the ability to make any changes they have stipulated in the small print. In simple terms, missing payments is the single worst thing you can do to make credit card debt worse.
5. Ignoring the Perks and Benefits on Offer
From discounted take away deals to cash back offers and two for one cinema vouchers, credit card companies are bending over backwards to offer their customers as many perks as possible. So many of us never actually use these and end up paying far more than we need to when we’re eating out or enjoying leisure time with friends. When you get an email from your credit card provider that discusses perks and rewards, give it a cursory glance at least. Your next bottle of champagne, music album or electrical device could end up costing you far less than you expected.
6. Never Checking Your Statement
You have your automated payments all set up and you never really use the card to pay for things much, so why do you even need to check your statement? Sound familiar? This is an attitude that so many of us have when it comes to credit cards but its never a good approach. Always check your statements to make sure there hasn’t been any suspicious activity or that you haven’t overspent by mistake. Some people can end up amassing a huge amount of debt on credit cards simply because they forgot about promotional rates expiring or didn’t realise it was being used by somebody else. It takes seconds to check your credit statement so try to make time for this each month as standard.