3 Credit Card Mistakes that Cost

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Canadians are walking around with a whack of credit cards in their wallets. With more than 74 million Visa and MasterCards in circulation, every Tom, Dick and Harriet now has a card or four. Hey, a credit card is great if you’re using it for convenience and to build a credit history. But make these common mistakes and you could find yourself out of pocket and with a bruised credit score.

1. Mimimum Payment Mistake: Perhaps the biggest mistake cardholders make is looking only at the minimum payment box and thinking that’s fine and dandy. Hey, if all you’re after is a great credit score, this is one way to do it, but you’ll pay dearly. On a card with a 19.9% interest rate, a small balance – let’s say $500 – looks like nothing much with a $10 minimum payment. But if you only pay the minimum, it’d take you nine years to get that puppy paid off. And by then, you’ll have paid more than your original balance in interest. Damn!

2. No Payment Mistake: Of course it’s better to make the minimum than no payment at all. According to one bank poll, 23% of people between 18-35 had missed a monthly payment. That not only sends a message to your credit card company to up your interest rate because you’re a crappy credit risk, it goes on your credit report and alerts all the people from whom you have borrowed that you’re stumbling financially. Missing a payment is like taking out an ad saying, “Hey, I’m screwing up my money!”

3. Supplemental Income Mistake: Part of the reason people end up missing payments and only paying the minimum is because they’ve fallen into the trap of think of their credit as supplemental income. Your credit card is a payment tool. You should not be using it to fill the hole in your budget because you’re spending your money like a fool. When you start counting on credit for groceries and the like, you’ve stepped into a quagmire and you will sink. Get a second job. Get a third job. Get that credit card paid off!

While it has become common to whine about how credit cards are evil and the root of all financial woes, nobody made you put that restaurant meal on credit and then go home and only make the minimum payment. And if the debt is still hanging around long after you’ve flushed the toilet on dinner, you only have yourself to blame.

Credit is a tool. Debt is when you take that tool and turn it into an anchor around your neck. Don’t be surprised when you drown.

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Gail Vaz-Oxlade

Gail Vaz-Oxlade wants YOU! Join MyMoneyMyChoices.com to get smarter about your money and help others get smarter about theirs. Isn’t it time we eliminated financial illiteracy? Come find me on Google+ and on Twitter.

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12 Responses to “3 Credit Card Mistakes that Cost”

  1. I’ve made my share of mistakes in my life but I’m happy to say that I’ve never made any of these credit card mistakes. I rarely use a credit card now that most places take debit, and if I do I pay it off completely before the bill arrives.
    Credit cards are convenient, and usually necessary, for making travel reservations, for shopping when in other countries, and for online purchases, but the money needs to be already sitting in the bank ready to pay the bill before the due date to avoid paying any interest.

  2. I think there should be an advanced version of this type of posting, something like:

    1. Did you know that most credit cards in Canada charge a 2.5% foreign currency fee, ON TOP of the already inflated exchange rate? Look for cards that don’t charge foreign currency fees.

  3. I use a credit card for the rewards and pay it off every month but once or twice I’ve been bitten by not paying attention to the due-date and missing a payment by a day or two. Now I’m paying interest on a $2,000 balance just to earn $25 in rewards – not good!

    Luckily, each time I was able to call the credit card company and let them know payment was on the way, and they waived the interest charge. Whew!

  4. Like you, Robb, we use a credit card for the grocery savings (our camping food budget). We treat it like cash. Each week we add up what we put on it and then pay it off in full. Then when we go camping and want to splurge on the extra treats we use the accumulated points towards our purchase.

    This has all come about after learning some tough lessons. :) Now we are 2 payments away from saying farewell to a balance on another cc that has cost us dearly. YaHoo!!!

  5. Another one I got dinged on – I needed cash and didn’t want to pay a service charge at an RBC machine but that was the only one available (I bank with another bank). I thought no problem, I’ll take a cash advance on the credit card and be sure to pay it off before the end of the month so I don’t have to pay any interest. Thus I learned the hard way that interest on cash advances starts immediately and not at the end of the month. I ended up paying $10 in interest in order to not pay a $1.50 service charge. What a dope! This is about seven or eight years ago and I haven’t taken a cash advance since.

    Like Geoff, I’d also like to see an advanced version on stupid ways credit cards ding you in ways you may not foresee. I noticed that my sister-in-law was paying balance protector insurance and had no idea what it was. Many people are paying this and have no idea what that is. All it covers is the minimum payment for you so you end up paying way more in premiums than it would actually cover you for. She cancelled it after she learned this. The name “balance protector” sounds like it would cover your full balance – nope!

  6. avatar Alexandra Says:
    July 8, 2014 at 3:30 pm

    for Robb Engen: Please be careful with late payments – used to work for a credit card company – reversing/writing off the late penalties does not necessarily mean the payment won’t show as a late payment at the credit bureau – in most cases waiving the late penalty is just a credit on the balance. Not all companies operate the same way.

  7. Hi Alexandra, thanks for this. I don’t make a habit of paying late because gives me an awful feeling in the pit of my stomach (like I’m the dumbest person alive for wasting money in that way).

  8. avatar Wendy Moffat Says:
    July 8, 2014 at 7:37 pm

    Like Alexandra, I too also worked for a credit card company. Believe it or not, some people think that if they make the minimum payment on time, there will be no interest charges, usually 18 to 20 year olds with their first card, however some older ones also mistakenly thought this.

  9. avatar Stefanie Says:
    July 8, 2014 at 9:40 pm

    We have a joint Visa Infinite (rewards card) and I have a no fee Mastercard. We pay the balances in full each month – to avoid late fees and interest, we have set up automatic payments. Stores seem shocked when I refuse their offer of a store credit card – but I don’t need one! Peace of mind comes from knowing that I don’t have a bunch of cards to worry about! If for any reason we had to make a MAJOR purchase on either card that we couldn’t pay off at the end of the month, we would transfer the funds from our line of credit which has a much lower interest rate. I am grateful that I was brought up with the belief of if you can’t afford it, don’t buy it (or at least save up until you can!)

  10. I keep getting offers for expensive and “exclusive” credit cards some with fees of 400 bucks a year as I make a lot. However, I still stick with my free card, the MBNA Mastercard. I get some cash back on it (literally cash, unlike points which are a rip off).

    The other thing is I’m an investor in Mastercard and Visa, and a few banks. These companies have had tremendous growth over the years and doled out ever increasing dividends. I would encourage you all to invest in these companies instead of being used and abused by them.

  11. Hi, very interesting post thanks for sharing. Can I contact your through your email. Thanks!

    Randy
    randydavis387 at gmail.com

  12. Working at a retailer who offers a card-some people don’t realize that with deferred payment plans, if you owe one cent of the principal after the due date-you have to pay the FULL interest amount, not just on what’s due. There should be a law against it in my opinion but it happens to people. Don’t get caught.

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