Think you have your credit card under control? These pieces of plastic offer lots of flexibility and rewards that can make buying things more convenient. But these eight hidden issues with credit card usage could be costing you a lot more than you realize.
High Interest Rates
One of the many costs of having a credit card is the interest rate on balances. Many credit cards carry high annual percentage rates (APRs) that can add up fast if you keep a balance from month to month. Try to pay off your credit card every month, or at least pay more than the minimum so you aren’t victim to inflated APRs.
Late Payment Fees
Failing to pay on time can trigger hefty late fees, which could be anywhere from $25 to $40 or more, depending on your card issuer. Late payments can also hurt your credit score and potentially raise your interest rate, impacting your budget even more.
Annual Fees
Most credit cards come with an annual fee, which can be anything from a small amount to several hundred dollars, depending on the card’s benefits. Some premium cards do provide valuable rewards, but depending on how much you use the card, the annual fee can offset the benefits.
Cash Advance Fees
Need cash in a pinch? It can be tempting to take out a cash advance on your credit card, but it will hit you with high fees and interest rates. Cash advances typically have their own APR, which is much higher than your regular purchase APR, as well as an upfront fee.
Impulse Spending
The most obvious problem with credit cards is spending money when you might not otherwise, thinking you’ll just pay it off later. Swiping a card makes spending money feel less real, making it easier to overspend. Prevent this by sticking to a budget as best you can and adding a “cool off” period if you’re considering using your credit card for larger purchases.
Over-Limit Fees
If you exceed your credit limit, some credit card issuers may charge you an over-limit fee. Even if you can afford to pay your balance, exceeding your limit may incur further fees. These fees can accumulate on top of your debt, as well as harm your credit score. Be mindful of your spending and try to keep track of your credit limit so you aren’t stretching yourself too thin.
A Poor Credit Score
Credit card use can impact your credit score in different ways. Your score can drop due to high credit utilization ratios, late payments, and missed payments. A poor credit score can lead to higher charges on loans and insurance premiums. It can cost you in the long run by making it harder for you to get a mortgage, car loan, or even an apartment.
A Lack of Financial Awareness
The final entry to our list is a lack of awareness as to where your money actually goes. Many consumers aren’t fully aware of the terms and conditions attached to their cards, which results in unintentional overspending and lost opportunities to save. If you’re not clear on your credit card’s fees, interest rates, and rewards structure, you might be making financial decisions that work against your savings.
