“What you don’t know can’t hurt you” is a common way of saying ignorance is bliss. And when it comes to credit cards, not knowing all the facts can feel blissful… at first. After all, who has time to read all the fine print when signing a credit card agreement?
The reality is that you’re responsible for every line in the fine print as soon as you sign. Never is that more evident than on the day your first payment is due. Here are the most common misunderstandings credit card users experience that can easily be avoided:
“If I cannot pay the minimum amount due, I’ll just pay what I can — No one would penalize me for doing my best.” The hard truth is that submitting any amount less than what’s due by the due date can treated as a missed payment. Your interest rate could go through the roof, and there is often no negotiating it back down. As though that’s not penalty enough, you may well be hit with fees and a drop in your credit score. The best way to prevent these consequences? Pay at least the minimum amount due each month at all cost. Paying the full amount is always best practice, however, to avoid accumulating debt.
“Forget the standard credit card; If I get the “Platinum” card, then I will have no credit limit whatsoever. Talk about freedom!” Sure, you want to be considered a “VIP” or “Elite” member. So do the rest of us. But don’t fall trap to the thought that your credit card company’s most exclusive program doesn’t have a credit limit for the cardholder, even if that’s what they’re advertising. In fact, if you reach that limit, it may be a rude awakening, since likely you’ll be penalized with no obvious forewarning.
“I need to cut up all my credit cards and never utilize debt again.” This extreme response can be temporarily appropriate in certain circumstances. In fact, many successful people have overcome gambling or shopping addictions by employing the “cut all ties” method. A qualified financial counselor can help you determine whether you’d benefit from this approach. For the typical consumer though, one bad experience does not need to make you an enemy of credit cards permanently. Using credit cards wisely can establish and greatly improve your credit history. So while using only cash, debit cards or prepaid cards might keep your spending in check, you’ll be in for an unpleasant surprise when applying for a mortgage or prestigious job that requires a solid credit score.
“If I’m in over my head, there is no hope. My credit is ruined forever.” Discouragement is a natural emotion when dealing with overwhelming credit card debt, but hopelessness is not realistic. You’ll always have options. Poor use of credit cards may indeed wreak havoc on your credit score, but the beauty of your history is that nothing is etched in stone forever. After about seven years, those blemishes and dings will disappear, so focus on what you can control today, not what mistakes you’ve made in the past.
Making poor choices (and living with their consequences) is one thing, but financial trouble is especially difficult if you never saw the problem coming. Too often, this happens to users of credit cards who misunderstand the responsibilities that come with their “plastic.”
Being aware of the above common pitfalls is a good start, but there’s no assurance quite like knowing all of the potential problems before ever inking that agreement. And unfortunately, nothing can educate you on your own responsibilities quite like reading the fine print… long before authorizing the agreement.
If you are experiencing financial difficulty and are looking for a solution, non-profit credit counseling can help you make sense of all your options. Contact us today for a free financial assessment with one of our certified credit counselors.
