Credit Cards

Do you hate throwing money away? So don’t make this credit card mistake.

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It’s a mistake you really want to avoid.

Key points

  • Credit cards offer many benefits that can save you money.
  • They can also be expensive when not paid in full.
  • Carrying a balance on your credit card will lead you to pay unnecessary interest.

There are many ways you could benefit from regular credit card use. For one thing, most credit cards offer opportunities to earn rewards or cash back on your purchases. That’s free money you can pocket without having to do anything special other than swipe or insert a piece of plastic (or enter your card number on a website).

Plus, when you shop with credit cards, you get some protection. Let’s say you buy an item that you want to return, only the merchant in question gives you a hard time about it. For a cash purchase, you may be out of luck. But if you’re talking about a credit card purchase, you can dispute the charge and let your credit card company handle that battle.

But while credit cards certainly have their advantages, there is a drawback associated with them. And it can be expensive.

You could end up wasting a lot of money

Credit cards give you a spending limit that is based on several factors, including your credit score and income. But your spending limit doesn’t necessarily reflect how much you can actually afford to spend each month. And if you rack up too many fees and end up with a balance you can’t pay in full, you’ll effectively end up throwing your money away.

Because? As soon as you transfer a balance on a credit card, you sign up to pay interest on it (the only exception is if you have a 0% introductory rate on your credit card, but even there, you could run into trouble with interest charges if your card is not paid in full in a timely manner). So if you don’t like the idea of ​​spending money on interest, the solution is simple: ignore your credit card’s spending limit and set your own.

How do you determine that? Prepare yourself with a budget that maps your monthly expenses. From there, see what you can afford to spend in different categories. You might be able to afford a $100 monthly cable bill and you might be able to spend $100 a month on carpools, but only if you keep your restaurant and takeout bill under $100.

Obviously, the specifics of how much you can afford to spend in one category versus another will depend on what your non-negotiable bills look like, like rent, utilities, etc. But if you set your own spending limit and stick to it, you’ll avoid having to pay off credit card balances and you won’t have to pay interest.

Don’t spend more than necessary

People are often drawn to make purchases when the items they want are on sale. But remember, if you buy a sale item with a credit card and don’t pay the bill in full, you could void the benefit of that sale and end up overpaying.

Let’s say an item you’ve wanted for a while normally costs $100 but is marked down to $80. If you load that $80 on a credit card and transfer your balance for a long time, you could end up spending more than the original $100 when you have account interest charges. And that doesn’t make any sense.

All in all, carrying a credit card balance means spending money. So it’s best to avoid that scenario at all costs.

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