10 common credit card mistakes
Credit cards can be useful and rewarding when used properly – but be sure you're not making these common mistakes.
There are many advantages to having a credit card, but when used improperly, you can end up spending more money than you have and spiralling into debt. Learn about the common mistakes people make and take note of these best practices to get the most from your credit card.
Credit card mistakes & best practices
As useful as credit cards can be, anyone making the following credit card mistakes is going to cost themselves money – and may even land themselves in some serious financial difficulties. Pay attention to the best practices to make sure you’re maximizing the benefits of your credit card.
|Common Mistake||Best Practice|
|Paying interest. If you spend more than what you can pay off each month, you will be charged interest on your purchases – and interest is just money down the drain. Interest compounds and grows quickly, meaning that if you’re not careful, it doesn’t take long to get into unmanageable debt with a credit card.||Pay the balance. Pay off your entire statement balance each month. This way you can enjoy the perks of a credit card without the unnecessary expense of interest.|
|Making cash advance transactions. When you take cash out of an ATM or make gambling transactions on your credit card, you will likely face a cash advance fee and the cash advance interest rate, which may be higher than the purchase rate. A cash advance transaction is usually charged from the day you make the transaction – there is typically no grace period.||Use cash or a debit card. Unless it’s an emergency, don’t use your credit card for cash advance transactions. If it’s an emergency and you need to do so, pay it off as quickly as you can to avoid as much interest as possible.|
|Spending for rewards. Credit cards entice you to spend more money since they reward you with bonus points, miles or cash back for your spending. It’s tempting to buy things you don’t need or haven’t budgeted for when points or cash back are in the picture.||Spend within your budget. Buy what you need and what you’ve budgeted for. If you’re paying more for the card than what you’re earning in rewards, consider a card more suited to your budget and spending style.|
|Holding too many credit cards. Not only can you easily lose track of your spending, but your overall creditworthiness will be reduced, meaning other lenders may be reluctant to loan you money when you really need it.||Have one or two cards. Choose which credit cards serve you best and cancel the rest. You’ll be able to keep track of your spending better and make the most of your cards related perks.|
|Maxing out your credit card. Spending right up to your credit limit can make you look like a risky borrower and may decrease your creditworthiness and cost you overdraft fees.||Pay down part of your balance. You don’t have to wait for your statement to arrive to pay off some – or all – of your balance. Pay some of it down before you add more charges to keep you from maxing out.|
|Keeping a high-interest debt. If you’ve racked up credit card debt and are struggling to pay it off, keeping it on a high-interest rate credit card can cost you an unnecessarily high amount in interest.||Balance transfer to a 0% card. Transfer your high-interest debt to a new credit card that offers low or 0% interest on balance transfers for a specified period of time. You’ll save big on unnecessary interest charges.|
|Not immediately reporting a lost or stolen card. If you’ve misplaced your credit card or suspect it may have been stolen, it is your responsibility to take action. Not doing so could at best create a major headache, or at worst leave you liable for $50 in fraudulent transactions.||Call your bank or provider. Even if you’re unsure about the transaction, it’s safer to call your bank and let them know. Sometimes you can block or lock the credit card without having to completely cancel it.|
|Not checking your statements and recent transactions. Pay with plastic and you can bury the price and repayment deep in your mind, and adapt a ‘pay now, worry later’ attitude.||Pay attention. Most credit cards these days are linked to banking apps accessible on your smartphone. Periodically check your transactions to stay on top of your balance and pick up on any unnecessary or fraudulent transactions.|
|Avoiding the fine print. Credit card companies are counting on you not reading or not fully understanding the product. When this happens, you will likely end up being charged interest or penalty fees, or not receiving an offer you were expecting to get.||Do your research. Read through the terms and conditions, check out product reviews or call the provider to ask questions. Make sure you understand what you’re getting, how to get it and what you need to pay.|
|Failing to compare credit card offers. There are plenty of credit cards on the Canadian market and choosing one without doing your research could lead to a rejected application or the acquisition of a credit card that doesn’t suit your needs and spending habits.||Carefully compare your options. Make sure to consider the annual fee, interest rate, promotional offers, any rewards schemes and other perks like travel insurance or purchase protection.|
Mistakes to avoid when doing a balance transfer
Cardholders saddled with high interest rates on their existing credit card debt look to balance transfer deals to alleviate the burden of interest payments. While there are a few different balance transfer offers on the market to choose from, it’s essential to compare them all to find the best offer for your needs.
Here is a list of the most common balance transfer mistakes so that you know what to avoid.
- Not doing enough research pre-application.
There are a variety of balance transfer offers on the market and you need to make sure you choose the right one for your debt amount, creditworthiness and circumstances. To compare offers, consider these six primary factors:
- The balance transfer interest rate. The interest rate you’ll pay during the balance transfer period (usually 0% to 1.99% APR).
- The balance transfer period. How long the balance transfer interest rate applies (usually six to ten months).
- The balance transfer revert rate. The interest rate your transferred debt will attract after the balance transfer period expires (usually the purchase interest rate, but might be the cash advance rate).
- The balance transfer fee. The fee – charged as a percentage of the transferred amount – you’ll have to pay to move your debt to a new card (usually 1 – 3%).
- The annual fee. The amount you’ll be charged each year to hold the credit card (varies between cards and providers, but may be anywhere from $0 to $100, or more).
- What is considered an eligible debt. You cannot transfer debts between credit cards issued from the same provider or cards not issued in Canada. Make sure the debt you want to transfer is eligible to be applied to the new card and confirm the maximum amount you can actually transfer.
- Not making the transfer in time.
Most balance transfer cards offering an introductory balance transfer rate require that you complete the balance transfer at the time of application to take advantage. Otherwise, there may be a small window to initiate the transfer, usually about one to three months from the activation of your new card. If you fail to specify the balance to be transferred within the time frame, or at the time of application, you will lose the opportunity to do so.
- Not maximizing your repayments.
If you take advantage of a 0% balance transfer interest rate for an introductory period, making only the minimum repayment will likely not get you out of debt in time. The best practice for paying off your entire balance transfer is to pay it off in equal amounts each month over the course of the 0% or low interest balance transfer period.
Now that you’re aware of the most common credit card and balance transfer mistakes, you can start to fix the problem, mitigate any existing damage and find the right credit card for your financial needs and spending habits.