Almost everyone in the US has a credit card. Almost all households have home mortgages to pay for. A huge part of car owners are still paying for installments dues. And because unemployment rates are going high, people are struggling to pay for loans and debts they have already concurred before knowing that this global financial crisis will finally catch up to them. While it is fairly easy to say that having debts is unavoidable during these challenging times, it is still very possible to do away with mounting bills and loans. In order to do this, one should know the things they need to avoid in terms of handling credit and loans. Here are the 5 most common credit malpractices that lead to bad credit scores, rising payables, and worse, bankruptcy.
- Unrestricted use of your credit card.
The more you use your credit card, the more debt and interest you pay. Yes, you can opt for installment plans whenever you purchase stuff with your credit card, but doing so too often will mean higher monthly dues.
This is the most common sin that credit card users do—losing control of swipes and online purchases! Whenever you use your credit card, make sure it will still be within your financial reach. While this is a good point to consider before using that magical card, you should keep in mind that using it too often will possibly mess up with your budget.
How does this happen? Simple. Say for example you have budget for monthly credit card use amounting to a maximum of $500 each month. You can settle your bills without interests within a particular period of time. But if you ever miss on a single bill, interests will surprise you and they will not be included in your budget.
- Mishandling balance transfers.
Who says debts are completely bad for you? Getting a new credit card with low or no interests in balance transfers is a clever way to pay your old credit card debts. By simply transferring balances to your old high-interest card, you are able to pay them and replace your debts with lower interest rates. However, if you are not done paying your new credit card dues and yet are able to acquire new debts using your old card, you will absolutely find yourself drowned again in debt in no time. Balance transfers are only effective to those who can stop using their cards until they are able to settle their balance transfer dues.
- Not paying attention to your financial liabilities.
One of the worse things you can do after using your credit card or acquiring any form of debt is to ignore it. Without having a concrete budget plan to settle bills and financial obligations including debts and interests, you will certainly end up either bankrupt or in jail. It may seem the easiest way out of such a difficult quandary, but it is actually not a way out—it is a way to go deeper in debt. Instead of acting irresponsible, you should monitor your credit card and other debts closely. Know how much interest they have, how much their minimum repayment amounts are, what other fees you are paying for, etc. List down all necessary monthly expenses and figure out a way to pay at least the minimum repayment amount, with extra efforts to allocate more than that.
- Not paying your monthly dues.
The end result of not paying your dues on time is an uncontrollable mounting of debts, such that interests and the next month’s dues will pile up in front of you. Instead of having a more manageable debt payment scheme, things will go rowdy and difficult to handle. When two monthly dues accumulate with interests, it will be double the amount of your allotted budget.
- Denying your credit status.
You do not have to shout your current financial status to the world. At some point, everybody knows that it is totally possible for you to have debts. However, if you think you need to prioritize and avoid unnecessary expenses to settle dues and debts in a more organized manner, you will have to explain to your friends and family why you won’t be able to join them at the movies, or take them to fancy dinners. To let them know that you are not simply avoiding them, let them know your urgent financial liabilities and they will surely understand.