Managing all aspects of household finances isn’t always easy for the average consumer, and one area where many make missteps is in dealing with their credit cards. Fortunately, some problems are more common than others, and are therefore easier to avoid as well.
One of the easiest ways consumers can see their credit card use turn problematic is in not properly budgeting for everyday spending on the card, according to a report from CBS MoneyWatch.
The savviest consumers will tap their credit card accounts only when they have to buy something that they otherwise would not have the cash on hand to purchase. This may include larger purchases like appliances or other items for their home.
But when it comes to everyday spending -- a cup of coffee here, or lunch there -- that’s where the outstanding debt can really add up. Instead, consumers should think about only paying for these common items with cash or debit so they don’t learn the perils of overspending the hard way.
Another common mistake consumers regularly make with their credit cards is using them to pay their other bills, the report said. While this is occasionally unavoidable given how financial emergencies have a tendency of cropping up unexpectedly and at the last minute, doing so regularly should be avoided at all costs. This practice is actually quite common during the first few months of the year because many opt to put their annual tax bills on their card, without realizing that doing so also incurs what can occasionally be a sizable “convenience” fee.
And one way many consumers look to reduce the risk of overspending on their credit cards is by using a rewards card -- which many may view as giving them “free money” for spending they would do anyway, the report said. However, these cards typically come with higher interest rates and annual fees than no-frills cards, meaning that unless the balance is being paid off in full every month, borrowers may actually end up paying more to keep the card than they’re earning in points.
The best advice a consumer can follow with regard to their credit card, though, is to use common sense. If a financial decision doesn’t seem to make much sense, it should probably be avoided.
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