3 credit card mistakes that cost

These plastic faux pas will leave you in debt and with a bruised credit score.

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by Gail Vaz-Oxlade
November 22nd, 2012

Online only.

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Canadians are walking around with a whack of credit cards in their wallets. With more than 74 million MasterCard and Visa cards in circulation, every Tom, Dick and Harriet now has a card or four. Hey, a credit card is great if you’re using it for convenience and to build a credit history. But make these common mistakes and you could find yourself out of pocket and with a bruised credit score:

Minimum Payment Mistake

Perhaps the biggest mistake cardholders make is looking only at the minimum payment box and thinking that’s fine and dandy if they just pay that. Hey, if all you’re after is a great credit score, this is one way to do it, but you’ll pay dearly. On a card with a 19.9% interest rate, a small balance—let’s say $500—looks like nothing much with a $10 minimum payment. But if you only pay the minimum, it’d take you nine years to get that puppy paid off. And by then, you’ll have paid more than your original balance in interest.

No Payment Mistake

Of course it’s better to make the minimum payment than no payment at all. According to one bank poll, 23% of people between 18 and 35 years of age had missed a monthly payment. That not only sends a message to your credit card company to up your interest rate because you’re a credit risk, it goes on your credit report and alerts all the people from whom you have borrowed that you’re stumbling financially. Missing a payment is like taking out an ad saying, “Hey, I’m screwing up my money!”

Supplemental Income Mistake

Part of the reason people end up missing payments and only paying the minimum is because they’ve fallen into the trap of thinking of their credit as supplemental income. Your credit card is a payment tool. You should not be using it to fill the hole in your budget because you’re spending your money than you make. When you start counting on credit for groceries and the like, you’ve stepped into a quagmire and you will sink. Get a second job. Get a third job. Get that credit card paid off.

While it has become common to whine about how credit cards are evil and the root of all financial woes, nobody made you put that restaurant meal on credit and then go home and only make the minimum payment. And if the debt is still hanging around long after you’ve flushed the toilet on dinner, you only have yourself to blame.

Credit is a tool. Debt is when you take that tool and turn it into an anchor around your neck. Don’t be surprised when you drown.

3 comments on “3 credit card mistakes that cost

  1. My minimum payment is always $10, it would be ridiculous to only put that much towards my credit card.

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  2. My wife (retired teacher) and I (retired preacher) both in our early 80's, have used credit, as tool, all our lives. I have also being an avid student to the story, the nature and function of money since the 1960's and glad to share what I have learned with anyone interested. For some time now, we have no no mortgage debt, no credit-card debt and, therefore, no anchor-like feeling around the neck.

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  3. So many worries for so little benefit. Cash back, points, and miles are surprisingly not redeemed and that is the only tangible benefit that could be argued. Ditch the CC's and you'll be amazed at how your finances change. But, many are so bright that they can't worry about focusing on their finances…it's just not their thing. Whining about being taken advantage of by nasty, "rich" people is apparently all they can do.

    Reply

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