7 Common Credit Card Mistakes to Avoid for Better Financial Health

Remember when Ross tells Monica Geller that she can't wait for a bill notice because she's not a "Kook"? Well, don't be a "Kook" either—pay up on time!

We all enjoy the timely benefits of Credit cards and they can be a fantastic financial tool—if used wisely. When you manage your cards responsibly and pay off your balance in full each month, you avoid interest charges and can even boost your credit score. Credit Card gives you a convenient way to make purchases and offer perks like rewards or added purchase protection. However, you if follow Ross's advice, you might end up in financial trouble. So, let’s dive into seven common mistakes people often make with credit cards and how avoiding them can help you get a savings fund rather than paying it off as interest.

Only Making Minimum Payments

It's tempting to pay just the minimum amount due on your credit card bill, especially when money is tight. However, credit card companies charge high interest rates on unpaid balances, which can cause your debt to snowball. Instead, why not aim to pay as much as you can afford each month, even if it means cutting back in other areas?

You might not immediately feel like you’re saving money by paying more each month, but in the long run, you are. You’re also lowering the amount of interest you'll pay over time. The money saved from reduced interest can be put to better use, like building an emergency fund or investing in your retirement, where compound interest works in your favour.

Using Credit Cards for Everyday Purchases

Another pitfall to avoid is charging everyday expenses to your credit card. Unless you're disciplined with your budget like Monica Geller (sometimes, OCD can be helpful too!) and can pay off the entire balance each month, using credit for daily purchases can lead to debt accumulation. By keeping everyday expenses—like groceries and utility bills—off your credit card, you can better control your spending. Think about this: a $3 gallon of milk could end up costing you $30 if you don't pay off your balance in full each month. It's wiser to pay for routine items directly with your income—using cash, a check, or a debit card—or have a clear plan to clear your credit card balance every month. Planning can be an advantageous thing.

Chasing Credit Card Rewards

Credit card rewards can be tempting, but they’re often not worth the cost if you end up carrying a balance in your statement. While you might earn points or miles, the interest you accrue on unpaid balances typically outweighs any rewards. For example, you might earn one point per dollar spent, but you often need thousands of points to get a small discount on a plane ticket. Once you've paid off your debt and know how to avoid falling back into it, you can use credit cards strategically to earn rewards. Just make sure to pay off your balance in full and on time every month to truly benefit from the rewards without accruing debt. If you're adding financial stress to chase rewards, it's probably not worth it. Remember, this advice is not for your EMI'S.

Taking Out Cash Advances