What’s the first thing that comes to your mind when you think about using a credit card? Convenient shopping? Rewards? Benefits? Spending anytime, anywhere? If your answer is yes, you should also understand that there is another factor you should keep in mind which is imperative to credit card usage — responsibility.
Responsibility to minimise risks, responsibility to manage your credit, responsibility to keep a good credit score, and responsibility to maintain a financial equilibrium are some of the crucial elements of efficiently managing your credit card.
Be a savvy user and don’t make these 6 common credit card mistakes.
1. Not understanding fully what all your card offers and at what cost
Are you making sure that your credit card gives you the best possible reward for your lifestyle and expenses?
Let’s say you travel frequently or wish to travel more frequently. An air miles credit card will benefit you much more than a card that gives cashback on grocery purchases. And if you have both these requirements, you could consider having two credit cards and use each one for its specific purpose.
Equally critical is to know and analyse what’s the cost of your credit card rewards, and then decide whether they are worth it or not. For instance, if you own a cashback credit card, you should know what must you spend on to get the desired cashback, and what kinds of spends don’t give you much at all. Make sure you are aware of the monthly caps and minimum spends as most cashback credit cards will have them.
2. Forgetting about your rewards points
The rewards points associated with a card are generally valid for a certain period of time. You need to keep a close eye on the validity period, utilise the rewards and benefits before they expire in order explore the true potential of your card.
3. Missing payment deadlines, paying only minimum dues
Yes, there are many among us who have been guilty of this at some point. You should always complete your monthly credit card bill payment on or before the dedicated due date.
This way you’ll not only save yourself from late fees and other penalties being charged, you’ll also ensure your credit score isn’t affected by the late payment.
4. Using the credit card recklessly
Credit cards are convenient, no doubt about that. But using it in a reckless manner is calling for serious financial trouble.
Your bank may offer you a credit limit several times your monthly salary, but if you are constantly spending most of that credit limit, how will you get the money to pay back?
Many of us cannot resist a good sale, and we keep on spending through our credit cards thinking that we’re actually saving money.
But if you can’t pay back what you’ve spent and can pay only the minimum amount on your monthly credit card bill, you will find yourself in a never-ending cycle of repayments. In such cases, you will keep getting charged with interest every month and the amount due could even snowball.
As such, use your credit card only if you have the savings to pay back what’s due, and make sure you pay it on time and in full.
5. Using a credit card to withdraw cash
You’ll be well-advised never to consider this option. Simply because credit cards levy exorbitant interest charges from the very day you withdraw cash, coupled with a host of other charges, which leads to an astronomical wastage of money. If you’re making withdrawals overseas, there will be even more charges on top of the interest, so beware!
6. Opting to pay in local currency when shopping overseas with your credit card
When you make a purchase in foreign currency overseas with your credit card, you usually won’t know how much your purchases cost until you receive your statement.
Many merchants have taken advantage of our uncertainty to offer a service called dynamic currency conversion, or DCC for short. At the point of sale, you basically get to choose if you’d rather pay in ringgit, or stick with the foreign currency. The amount in ringgit will be shown to you immediately, and many of us make the mistake of thinking we’ll save money on conversion fees.
That can’t be further from the truth. That’s because in providing this ‘service’, merchants have already added their markup to the exchange rate, resulting in you paying significantly more than you would be paying if you didn’t pay in ringgit.
So be careful, always choose to pay in foreign currency when shopping overseas (online included).
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