Rookie mistakes can affect anyone from major athletes to novice investors, even presidents. There’s a reason experience is so important in many facets of life; we learn from our mistakes.
Some would argue that making mistakes is important expressly for the purpose of learning so that we can become better people, but I’ve often thought that it’s better to learn from other people’s mistakes when given the chance. Learning from other people’s mistakes saves us the personal pain and embarrassment of having made the mistake ourselves, but it can still provide us with a learning opportunity.
Mistakes are often costly, especially when credit cards are involved. Here are 5 credit card mistakes you should avoid even if you are a rookie when it comes to personal finance.
1. Substituting credit for cash
When you substitute cash for credit, you’re admitting that you can’t really afford what you’re buying. It’s hard to think of a more basic, rookie mistake than failing to plan ahead for that proverbial rainy day. Always save your money before purchasing an item. And always have an emergency account for unplanned purchases; it’s best to keep that money in a high yield savings account. I keep mine in an ING Direct savings account, but there are many other choices.
2. Making only the minimum payment
This is falling right into the trap laid for you by credit card companies. They know that it will take you literally forever to pay off your debt by making minimum payments – especially if you carry a balance and keep using the card for new purchases! DON’T DO IT!
Make at least twice as much as the minimum, and for Pete’s sake stop adding to the balance already!
Sorry to have gotten so rough with you on that, but it really is an easy mistake to make and a most difficult one to recover from.
3. Waiting too late to make a payment
Not only will you rack up late fees as a penalty on top of accruing more interest, but you may even be risking a rate hike. This is near suicidal in terms of credit card debt.
4. Taking a cash advance
If paying your credit card late and invoking interest rate hikes and late fees is financial suicide in credit card terms, then taking those oh so seductive cash advance offers is financial suicide with a tactical nuke!
Often times, these offers promise you cash today in exchange for you being saddled with a soul crushing, double-digit interest rate usually in the 30% range. This is almost as bad as a pay day loan, and it can leave you with nothing left over from your foreseeable future of pay days yet to come.
5. Closing your account
This is deceptive because it seems like the right thing to do to so many people – especially if you’ve juts paid off a huge credit card debt. In reality though, you’re much better off cutting up your credit card than closing the account. Closing your credit card account ends the line of credit available to you and makes you look less credit worthy. One exception I can think of is if you have 2 or 3 universal credit cards (VISA, Master Card, Discover or AMEX) and you’re closing a retail card like a Sears, J.C. Penny, Kohl’s, etc.. retail cards typically offer lower balances to begin with and much higher interest rates, so you’d probably be better off keeping the universal accounts open and closing the retail.
Its really an interesting post…..
Thanks for the advice! I’ve already experienced the #3 mistake and I don’t want to do it again. It can really affect your finances as you will be paying the penalty and your next payment will be doubled. These tips are very helpful to those who has credit cards.
Those cash advances are soooo dangerous. I don’t even like to look at them on my credit card’s site because I’m so afraid of them.
It’s obvious America has a credit card problem, but I wish people could read stuff like this to get a kick in the butt.
Austin @ Foreigner’s Finances