Credit Card Pitfalls You Must Know And Avoid

The credit card is certainly a wonderful invention. It allow you to purchase almost anything without any cash up front. However, this is where the danger lies. Since many people do not feel the pinch of spending actual cash, they tend to over spend and get themselves into a whole lot of financial troubles.

The first pitfall you have to know is that a credit card does not equal free money. Interests are being charged for any outstanding balance that is not paid in full.

The second pitfall is that interest has a compounding effect. This means that interest is added to your total balance each and every month to your outstanding balance. If you have a $1000 outstanding balance with a interest rate of 2% per month, the balance for the next month is $1020, then $1040.40, then $1061.21 and so on. By the end of one year, the total balance will be at $1268.24. Just imagine a $10,000 balance and you have to pay nearly $2700 of interest.

The third pitfall is the annual fee. While there are credit cards that do not charge an annual fee, many of them will charge a fee from the second year onwards. The fee can be as high as $150 per card. You should always ask for a waiver instead of ignoring it.

The fourth pitfall is late payment fee. Always pay on time, even if you can only afford the minimum amount. A late payment fee may not be very high but it has a detrimental effect on your credit history.

The fifth pitfall is over-limit fee. If you are big spender, the chance of you exceeding your credit limit is very high. Thus it is wise to take note of your available credit limit on a monthly basis so as not to incur the over-limit fee.

The last pitfall is credit card debt. Due to the high interest rate of credit card, the outstanding balance can grow into a monstrous proportion if left unchecked. By the time the harsh reality sink in, you may need to make some hard decision, such as mortgage your house, in order to do debt repayment.

Keep these pitfalls in mind the next time you deice to paying your outstanding balance in full. Be a responsible and informed credit card owner. Ignorance is not an excuse and will not help you in anyway when you faced with a huge mountain of credit card debt.

About the author:
Stephen Chua is the founder of CreditFavors.com, where you can compare and apply for major credit cards online easily. Visit his credit card blog to get your free copy of the Mini Credit Secrets book and other useful credit tips that can help you save money.

More Finance information like Stephen Chua's at Credit-Voitures.com

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