As a cardholder, you are exposed to several risks associated with debt and credit card use. It is important that you are vigilant and are aware of these risks so you can avoid getting into financial trouble in the future. You should be aware of debt traps that might cripple you in terms of financial capacity.
Here are some common debt traps that seem insignificant but can actually cause too much trouble if not given proper attention:
Paying Only the Minimum Monthly Payments
Most people pay only the minimum monthly payments required for their cards. Their reasons for doing so are varied. Whatever those reasons are, however, the outcome of this practice may not be pleasant. Paying only the minimum could incur interests and it could take you years before you can pay off your balances in your card. This means that all the while, you will be keeping a balance in your card, which is not good for your credit score.
This is a mortal sin if you own a credit card. Delayed payments can let you incur high interest rates and you can accumulate too much debt in the process. Pay your bills on time every month so you will not fall into a debt trap. In addition, pay your balance in full as much as possible. If you are short of funds, at least strive to pay the minimum monthly fee.
Not Reading the Fine Print
Reading the fine print may be boring, but everything that is essential regarding your credit card is written on it. Read it carefully so that you will know the terms and conditions that come with your card and so you can avoid certain problems that may arise in the future.
Not Giving Attention to the Conditions Regarding APR
Many companies offer low to no interest APR for a certain period upon card sign up and approval. Be aware that this could be a debt trap. The APR could change at the discretion of the issuer and you may find yourself struggling with its high fees. Before you apply for a card, consider also the standard rates of the card other than its introductory APR offer. Doing so can significantly help you in avoiding future debt.
Taking Cash Advances
Taking cash advances on the card is enticing for many. It allows you to have immediate funds whenever you need it. Take note, however, that using this feature can have adverse effects on you, especially when you don’t have the funds to pay for your advances. Cash advances have high interest fees. Take only a cash advance when you truly need it or during emergencies.
Transferring Balances to Another Card
Balance transfers have their own advantages. However, use this feature sparingly. Like cash advances, they may have fees and high interest rates. If you really need to use this feature for whatever reason, choose a balance transfer card that offers no transfer fee. You can find balance transfer cards worth considering here.
You can also compare good balance transfer cards below:
Using Cards Overseas
There are cards that charge a huge fee when used overseas. Be aware of your card’s foreign transaction fees so you will not be caught off card by their high charges. If possible, steer away from cards that charge high foreign transaction fees.
Defaulting on charges and using several cards at the same time are also common debt traps. Once you default on your charges, your interest rate may be increased, making it harder for you to manage your finances. This is true as well with using too many cards. When you use more than one card, you will be tempted to purchase and spend more than you can afford. Limit the number of cards that you are going to use and make it a point not to default on your charges if you want to avoid getting into debt.
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