Credit cards are popular because they are easy to use and convenient. Credit card use amongst millennials, the generation of people born between 1982 and 2004, is relatively high. According to a study by FICO, one in three, Millennials carries a monthly credit card balance between $1,000 and $4,999. Additionally, according to FICO, consumer research shows that 83 percent of Millennials (25-34 years old) use credit cards to fund their lifestyle.” This presents a risk to their financial future if credit is not used responsibly.
Given this risk, it is best to be aware of some of the most common credit card mistakes so you can develop a strategy to avoid the credit card debt trap. Here are some common credit card mistakes that Millennials make and strategies to avoid them.
5 Common Mistakes When Using Credit
Keeping too many credit cards. According to the FICO study, about 50% of millennials have between 3 – 5 credit cards. Too many credit cards may increase the temptation to make unnecessary purchases that you cannot afford. Therefore, it is easy to become overextended and unable to meet your financial obligations.
Signing up for the wrong credit card. There are many types of credit cards available with a variety of different terms and features. Research the features, benefits, and costs of the credit card before you apply. You should select a credit card that meets your needs and best meets your financial status. Rewards are nice but do not solely choose a card for the promotional offers and rewards. Read all the terms and conditions carefully, because some cards come with hidden terms and charges that increase the cost of your purchase and ultimately offset any savings or benefits that you may receive with any promotional offers and rewards
Overlooking your monthly statement. Ignoring monthly bank statements can be dangerous to your financial health. Bank statements allow you to assess whether your charges are accurate. Review the statement to ensure that the amounts are accurate and to check for identity theft and fraud. Early detection helps you to mitigate and fix damage sooner. This statements also shows your due date which helps you to avoid late payments. Also, checking the credit card statement can help you to know whether you have exceeded the credit limit. Therefore, take the credit card statement seriously and take steps to ensure accuracy, make on-time payments, and clean up errors immediately.
Not paying bills on time. Late payments can cost a lot of money. For example, you may encounter late fees or even a negative impact on your credit score. Having a bad credit score can impact your life in ways beyond loan approval or denial. Some employers will check your credit before offering you a job. Depending on the job, your credit can be the difference between getting hired or not. Therefore, think twice and learn how to use your credit responsibly.
Paying medical bills using credit cards. Medical costs can be expensive, and paying with plastic may cost you even more. If you encounter financial hardship, you have the option to negotiate your medical bills. Call the billing agency to understand your options to avoid paying bills with credit.
How to avoid credit card debt trap?
The good news is that with financial knowledge and discipline, you can avoid digging yourself into debt. Here are 5 ways to avoid falling into the credit card debt trap.
Treat credit cards like cash. You may not see the money leaving your wallet, but treat your cards with care. You do have to pay the money back with interest.
Understand credit card marketing. Credit card companies use targeted deals and promotions to entice you to sign up for the card. However, check the interest rate before you apply. If you do apply for a card, apply for a low-interest card or a rewards card if the interest rate is reasonable and other costs are low.
Use credit responsibly. If you have a credit card, please use it responsibly. Plan purchases in advance, track expenses and make on-time credit card payments.
Know what you owe. Calculate the total amount you owe to the credit card companies. If you are unable to make payments to the creditors, then negotiate with the company to lower the outstanding balance or payments. This will help to provide relief as you repay the balance.
Don’t just pay the minimum. Allocate an amount beyond the minimum that you can pay towards your credit cards to pay them off as fast as possible to avoid additional interest costs.
Credit cards help a student or a beginner to establish a good credit history, which is beneficial for your financial life. However, in order to build a good credit score, use your card responsibly and watch your spending.
Author bio: Patricia Sanders is a web enthusiast, and is associated with Debt Consolidation Care Community. She shares her expertise through her crisp and well-researched articles based on money management. She loves social media, as it gives her endless opportunities to reach out to a larger audience in a more unbiased way.