Credit cards can be useful tools for getting money in a pinch and helping to manage your money. If you’re not careful, however, they can end up spiraling you into debt or causing other problems. Using credit cards wisely is the key to ensuring their advantages outweigh their potential detriments.
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Helping your budget with credit cards means keeping track of when and how you use the cards, not exceeding the amount of money you can possibly pay back and paying your bills on time. It’s also wise to be very aware of the pitfalls that can trip you up financially before you even realize what’s happening.
Potential Credit Card Pitfalls
A number of potential pitfalls of credit cards are the wide array of fees that can come with your credit card, according to the Federal Reserve. Although the fees are required to be spelled out in the fine print, reading the fine print may seem tedious.
Don’t let the tediousness of it all get in the way of finding out what you’re in for before you sign any agreement on the dotted line.
Credit cards can charge fees for simply applying for the credit card in the form of an application. You may also be hit with a set-up fee for setting up a new account and an annual fee for having the credit card, whether you actually use the credit card or not.
More fees can come in the form of a an over-the-credit limit fee for charging more than your credit card’s limit allowed and yet another fee for requesting and receiving a higher credit limit. Pay your bill late and you’ll most likely be hit with a late payment fee. You may also incur fees for certain transactions, such as cash advances or balance transactions.
Optional extras that come with a credit card can also cost you extra cash. Credit cards can offer different types of insurance or protection programs. Some credit cards may offer insurance that gets rid of your debt or at least puts you debt on hold in the event of unemployment, disability, or death.
All the fees can pile up debt even before you use the credit card to charge a single item. Be very aware of the services you use and make sure you know of any fees associated with them.
Fine Print Points Out Possible Problems
Other potential credit card problems can also be spelled out in the fine print. One tactic credit card companies may use to hook you in is very low or even a 0% annual percentage rate, or APRs.
Since a high APR can quickly catapult your debt into seemingly insurmountable heights, a low or 0% APR may seem like the best credit card deal going. The only problem is that the attractive APR may only be an introductory rate to lure in new customers, with the APR soon zooming to new heights after the introductory period expires.
Avoid Paying Credit Card Interest Altogether
Interest rates in general can be a huge credit card problem waiting to happen, since they consistently add more debt to what is already due. Because interest rates only kick in if you roll over your balance due from month to month, one way to avoid any interest rates is to pay off the total amount of your debt every month.
Although this may not always be possible, at least be aware of the high costs of carrying a credit card debt over the long haul. Carrying over your debt is not the free money it may seem to be, according to the Mountain State Centers for Independent Living. It can instead end up unnecessarily costing you a bundle.
Credit Cards can be Safer than Cash
Credit cards can be safer than carrying around large amounts of cash in some instances, but they, too, have their dangers. Credit card fraud is one of the potential dangers of credit cards if your account number falls into the wrong hands.
Scam artists can be pretty sneaky about obtaining your account number for fraudulent purposes, the Federal Trade Commission warns.
They may send emails or place telephone calls pretending to be from a reputable company that needs your credit card number for a valid reason and then go to town with your account. If you notice unauthorized charges on your credit card account, cancel your account immediately and explain to the credit card company what happened. Many have clauses that protect you against credit card fraud and unauthorized charges.
You can reduce your risk of falling prey to scam artists or other potential credit card pitfalls by being vigilant with your personal information as well as your budget. Also, remember to keep a budget, as anything charged on the credit card will eventually come due.
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