5 Most Common Mistakes Leading to Credit Card Debt

Getting into credit card debt is easy. Staying there is even easier. However, while you may feel like you are all alone under your mountain of debt, you’re not, because millions of people around the world are struggling with their credit card debt too, and fortunately we all make the same set of mistakes which lead us into debt and make it hard for us to get out again.

Fortunate because you can now identify these mistakes in your own behaviours, and stop yourself from repeating those mistakes.

1 You keep using the card

Overuse is a popular way to get yourself into credit card debt because if you do not track your credit card purchases and budget to repay your balance in full each month, the compounding interest charges make it harder by the day to repay your growing balance. Plus, even if you have budgeted for your purchases and have simply not paid your credit card before the end of the interest free period, your budget is blown because of the extra cost you now need to cover to repay interest charged.

Once you are in credit card debt and having interest charged on your balances, you need to change your behaviour right away. Continuing to use your credit card when you are in debt is a mistake because your new purchases will not enjoy any interest free days because interest free days do not apply if you have an outstanding balance. This means you are going to continue to be charged interest on your outstanding balance and immediately on your new purchases growing your debt even faster.

2 Misusing a balance transfer

Balance transfers can be a wise way to get out of credit card debt but they can just as easily lead you into even more debt if they are misused. A balance transfer is when you apply for a new credit card with a low or 0% interest rate offer, usually for a limited time, to pay out your existing high interest credit card debt. Your existing credit card balance is then repaid to zero and you make payments to your balance transfer credit card, at a much lower interest rate.

However, misusing a balance transfer turns into as big mistake when:

· You spend on your new balance transfer card. You can often be approved for a balance transfer with a limit greater than the transferred amount however, unless you have chosen a balance transfer and purchase credit card offer – where the interest rate charged on new purchases is the same as the balance transfer rate, and offered for the same period of time as the balance transfer – then you can lead yourself into more credit card debt. This is because your balance transfer card repayments will go towards repaying your transferred balance first. Therefore if you apply new purchases these will instantly be charged a higher rate of interest until you have repaid your transferred balance in full.

· You spend on your old, repaid credit card. When your existing, high interest credit card suddenly has a zero balance it can feel freeing, not to mention tempting. However, if you start using your old card again without budgeting or repaying your balance in full each month, then you will find yourself in need of another balance transfer in a few months’ time, and with one already on your credit report, you may not be as easily approved for a second.

· You don’t repay your transferred balance within the offer term. Most balance transfer offers are for a limited time, often six to 12 months. After the term of the balance transfer offer, the interest rate charged on your balance reverts to the card’s regular purchase or cash advance rate. Therefore, if you don’t budget to repay your transferred balance within the offer period, you will be stuck with just another high interest credit card balance.

3 Ignoring your debt

Ignorance of your finances is a great way to get into credit card and is a particularly good way to stay there. If you are not crystal clear about the amount you have to spend in your budget each month, then you can easily spend more on your credit card than you can afford to repay, and quickly be saddled with a growing credit card debt.

Once that credit card debt has established itself in your life, it is even easier to go on ignoring the issue because it seems so hard to handle. However, blindly making the minimum repayment on your credit card debt is a mistake many people make and a mistake which can keep you in debt for a long time.

Instead make sure you are aware of:

· Your credit card balance.

· Your minimum repayment amounts.

· The current interest rate charged.

· The fees charged on your account.

Keep all of this information in a format you can easily refer to, whether it is a spreadsheet on the computer, a notepad on your desk or a page in the back of your diary. With all the facts in front of you, you can more easily plan your attack because you can budget for the minimum repayment amounts required and then look at your budget to allocate any extra funds you have available to make more than the minimum payment.

It is also important that you check on the fees and interest charges on your credit card because neither will be static. Interest rates on credit cards can changes just as frequently as the interest on a variable home loan and credit card providers often move much higher than Reserve Bank decisions.

4 Missing payments

When you are facing mounting credit card debt it is no time to set about destroying your credit rating so don’t make the mistake of missing the monthly repayments. It is easy to think ‘well I’m already in debt this far, what difference will a missed payment make?’ but keeping on top of your repayments and budgeting to meet your credit card obligations each month can keep you on track to managing your debt – slow and steady can win the race.

At the same time don’t take it too slowly and make the mistake of thinking that just paying the minimum amount each month will clear your debt. Making just the minimum monthly payment will see you repaying your debt for many years and repaying many more hundreds of dollars in interest so budget to repay as much as you can spare.

5 Keeping quiet

It can be embarrassing to be in debt at any level and the last thing you want to do is tell your friends and family about your woeful financial situation. However, making those around you aware of your struggle can make it easier to stay on track to repaying your debt because friends will not pressure you for expensive dinners out every week and family arrangements can be made so Christmas time is less of a burden for example.

Also make sure to speak up to your credit card provider if you are looking at mounting credit card debt. You should be able to negotiate a new repayment schedule which you can meet within your budget and you may even be eligible for a lower interest rate. Talking to your provider before you default can save you money, save you face and save your credit rating.

Alban is a personal writer at Home Loan Finder, where he provides tips and advice on refinancing and debt consolidation