Credit cards can significantly simplify our daily financial life when used correctly. However, if misused, they can impose a heavy burden on individuals’ budgets.
1. Misunderstanding the Credit Limit
Credit card limits are determined not to exceed four times the income (even more in disaster areas). This limit is readily available cash for you to use, but it’s not your money. Do not stretch the boundaries by saying ‘my card limit is sufficient’. Review your consumption habits if you do not have any savings, or if there is no money left in your hand after paying the credit card debt with your monthly income. Do not upset the delicate balance in income-expenditure issues.
2. Failing to Make Timely Payments
The account cut-off on the credit card is made every 30 days. Then a payment period of 10 days is given. Therefore, if you are only going to use the limit granted to you for shopping, you would have used it for 40 days for free. However, if money is not paid on the last payment day, interest begins to accrue. Even though the interest rates seem small, over time the total interest can burden your pocket. Your credit score also falls if payment is not made on time. Legal action is initiated.
3. Only Paying the Minimum Due
The card limit is essentially borrowed money. Thus, using this borrowed money and then not being able to make monthly payments or trying to save the day with only the minimum payment amount means that the money going out of your pocket will increase every day. Contractual interest of 1.36% is applied for the amount exceeding the minimum payment. If the minimum debt is also not paid, a delay interest of 1.66% is applied for the part up to the minimum amount. A conscious card user pays the period debt, not the minimum amount.
4. Constantly Creating New Debts
Credit cards allow you to make purchases thanks to the card’s limit, even if you don’t have cash in your pocket. The biggest obstacle to saving is to continuously increase the debt with the available limit. Card and credit debt make financial planning very difficult. Creating constant debt with an ‘I will somehow pay it’ approach can upset the accounts on the statement date. This recklessness has trapped many people in the minimum payment cycle.
5. Covering Debt with More Debt
One of the mistakes of those with card debt is to withdraw cash advances from a different credit card to cover the debt. We can also call this the vicious cycle of covering debt with debt. This situation makes it impossible for you to clear your debt and brings along consequences such as legal action, a decrease in credit score, and the card being closed to use.
6. Habitual Use of Installment Cash Advance
The cash advance is approximately 80% of the remaining limit of the card. With its monthly interest of 1.36%, it is currently advantageous to draw a cash advance instead of taking a loan. However, using cash advances to buy non-essential items just because the interest is low, even if there’s no immediate need, can disrupt your finances. Even if the interest is low, it is still a cost—don’t underestimate it. If you need to use a cash advance, don’t deplete the limit; you might have a much more pressing need one day!
7. Failing to Regularly Check Your Statement
Many people make their payments without regularly checking their credit card statement every month. Details such as applied interest, transaction fees, card dues, cancelled automatic payment orders, and duplicate cash withdrawals often go unnoticed. Checking your statement helps you plan your spending for the next month based on outstanding debt and installments. Control of the statement has a significant impact on budget control.
8. Not Cancelling an Inactive Card
If a credit card goes unused for any transaction for 180 days (6 months), it is automatically put on hold by the bank. However, putting the card on hold doesn’t mean it is cancelled. To fully cancel it, you need to call the relevant bank and give your approval. An uncancelled card also limits your credit limit. Banks may perceive the card being on hold as a negative situation.
9. Causing the Card to be Closed
A credit card is closed to cash use if the minimum payment is delayed three times from the 1st month to the 12th month, and is completely closed to use if the minimum payment is not made three times in a row. After the credit card is closed to use, the legal follow-up process starts from the user’s point of view. To reopen the closed credit card to use, the entire period debt must be paid.
10. Owning Multiple Cards
Having and actively using the card of every bank where you have an account makes budget control difficult. Additionally, card dues mean extra expense. More cards do not mean more limit. The limit of all owned cards cannot exceed four times the income. When can having multiple cards be advantageous? If there are cards from banks offering more attractive campaigns such as more money points in shopping, interest-free cash advance, and it is really worth it, then you can also have that card.