Credit cards are known to provide the convenience of making payments and offering great privileges. But this plastic card can be very risky especially for the new credit card users who may consider it an easy source of getting free money. In fact, some of the experienced credit card users can fall into the credit card debt trap. Once you have accumulated too much credit card debt, it takes a lot of years to pay it off. In fact, it hurt your credit score significantly. Due to a poor credit score, it will be very difficult for you to opt for a credit card or any other finances in the future. That is why, it is imperative to understand the dangers that come along with credit cards.
In this article, we have mentioned the different ways on how can you use your credit card responsibly and how can you avoid the credit card debt traps so many users have fallen into.
1.The Temptation to Overspend
It is an undeniable truth that most of credit card users tend to spend more when they spend with credit cards as compared when making transaction through cash. Well, of course, it is very easy and convenient to spend money on credit cards, and you do not feel the pain of leaving cash from your pocket at the time of making transactions.
Tips to Avoid It: If you have no control over your credit card spending then it is ideal to set a personal spending limit on the basis of how much you can actually afford to repay. Because there is no point to do overspending to live a luxurious lifestyle that you can’t afford or just to flaunt in front of people.
2. Interest Makes It Difficult to Clear the Balance
It is very important to pay off your credit card outstanding amount in full every month since it enables you to avoid paying extra interest at all. If you don’t pay off your credit card balance in full then you will have to pay interest on the remaining balance you didn’t pay. And if you continue to make minimum payments, the compounding interest can make it very tough for you to pay off the credit card debt.
Tips to Avoid It: It is advisable to clear your outstanding balance in full in order to avoid paying interest all of your purchases. If you cannot pay your credit card balance in full then you will have to pay more than you can actually afford.
3. Danger of Hurting Your Credit Score
Credit cards have a great influence on your credit score. That is why, it is quite important to use your card responsibly to maintain a good credit score. But if you mistake such as missing credit card payment for one month or more and you are exceeding your credit limit then your credit score will get affected negatively since the lender will consider you a credit hungry person.
Tips to Avoid It: The best way to build a good credit score is to pay your credit card bill always at the right time. Also, keep your card balance below 30 percent of your available credit limit.
4. Withdrawing Cash through Credit Card
Cash withdrawals on credit cards are basically known as a cash advance. This facility is provided for withdrawing cash but keep in mind that the bank charges a very high fee on cash withdrawals which might be the main reason for a debt trap.
Tips to Avoid It: You should avoid withdrawing cash through credit cards as long as you can. Also, it is advisable to withdraw cash through debit cards.
The Final Words
Apart from the aforementioned reasons for credit card debt, there are several other mistakes that people make when using a credit card. That is why, it is imperative to find the best credit cards online by comparing different cards and opt for the one that suits your spending habits and needs. Also, it is advisable to use it responsibly so as to avoid falling into a debt trap.