Credit cards are a helpful way to make purchases now which you can pay later. Sounds easy enough, right? Although owning a credit card comes with its benefits when used correctly and responsibly, it also comes with great risks if not managed properly.
If you are planning on applying for a credit card, here are a few important risk points to make note of and how to manage them.
Credit card debt
Getting into credit card debt is the biggest risk you are taking if you are not careful in using your credit card. It is very easy to borrow/spend more than you can return. The more you add to your balance which you do not pay off in full and on time, you will have to pay much more in interest. This will make it difficult to get out of credit card debt.
A way to avoid this is to be mindful of your spending and ensure that you pay your due amounts within the billing cycle.
Another mistake people make with their credit cards is late or missed payments. As mentioned earlier, this comes with certain consequences. Your payment history contributes to your credit scores and missing this can negatively impact your credit.
One way to avoid this is by setting up automatic payments or a monthly reminder that your bill is almost due.
Acquiring heavy interest charges
Credit card interest rates vary depending on the card, but they run high. Carrying your balance over to the next month or longer will result in paying a significant amount of interest.
Once again – to avoid paying large amounts of interest is to pay your credit card statement balance in full and on time, every time.
Using too much of your credit card limit
Your credit card utilization ratio refers to how much you’re using from your available credit card limit. If you have a high credit card utilization ratio, it can negatively affect your credit scores.
Limit your spending by being conscious of how much you spend and budgeting. In addition, pay off any credit card debt – this will help reduce your credit card utilization ratio.
In conclusion, you can minimize the impact of the dangers of credit cards by using them wisely and responsibly. Ensure that your outstanding dues are paid in full and on time and avoid overspending.