Credit cards are a great thing, a ready source of money in case of an emergency or to buy that new dress, plus some credit cards come with great rewards and are the payment method of choice on the internet. However, if not used properly credit cards can lead to long-term debt. It is important that credit card owners are aware of the many pitfalls that exist and how to avoid them. Knowing these credit card traps and how to avoid them will ensure a happy relationship with your credit card.
Do NOT pay off just the minimum monthly payment
Each month credit card issuers send a bill with a minimum monthly payment that is a very small fraction of the total debt owed. Paying off that small amount is easy, but paying off just the minimum monthly payment on is where most people’s credit card troubles start. The minimum monthly payment in most cases consists of a small percentage of the balance, plus interests and other charges. By paying only the minimum payment each billing cycle, most of the original debt still exists and will continue to gather interests that you will need to pay off next month. This is a deliberate approach by the credit card issuer to keep you in debt for longer. The best way not to fall into this trap is to pay all outstanding debt at the end of each billing cycle or at least pay more than the minimum repayment even if you have an interest free credit card.
Avoid Cash Advances or Cash Withdrawals
Another great benefit of credit cards is that they are a quick source of cash without the hassle of going through a loan application process every time you need money. But taking cash from a credit card will cost you a lot more than taking out a loan. The interest on cash advances from a credit card is very high, much higher than interest rates on loans from the banks. And interest is charged from the moment the money is withdrawn. Also, there is usually a cash advance fee every time you take out any money. All these add up to cost you a lot more and makes getting out of credit card debt difficult. If it can be avoided, it’s better not to make any cash advances on a credit card.
Consider transferring to a Low balance transfer card
At the moment most credit card issuers are offering fantastic balance transfer offers, some as low as 2.99%. While these are great deals for people without standing balance and paying high interest, it must be noted that most credit card issuers apply payments on the transferred balance only. This means that any payments you make goes towards paying off the transferred balance and not towards any new spending on the new card. Any new spending will sit there acquiring interest until the transferred balance gets paid off. The best way to avoid not falling into this trap is to avoid any spending with the new card until all of the transferred balance is paid off. Also, remember that the low balance transfer rates only last for a short period then after the higher standard rate applies.
Watch out for Hidden Charges
Most credit cards come with a long list of extra charges that can add to a considerable amount. Some examples of extra charges include exceeding your credit limit, late payment, lost card replacement, currency conversion etc. Every credit card owner should take time to read the fine print and be aware of all these charges and use their card in a manner that will keep these charges to a minimum.
Considering getting a credit card?
The best credit card for you would depend on your personal circumstance and how you intend to use your credit card. We have put together a list of some of the best credit cards in New Zealand to help you find the best credit card in NZ to suit your individual needs. Alternatively, you can narrow down your search by credit card type such as interest free credit card, low rate credit card, balance transfer, credit card reward or air nz credit card