The Known Pitfalls of Credit You Should Be Aware Of

Credit cards have always been titled as a wonderful invention; this instrument for transaction has actually been a boon for most of us, but only if we know how to use it right. There are pitfalls of credit, especially when you go on spending and you don’t have to pay cash up front. No actual cash is to be paid for any of the transactions you do. But if you abuse this power, there are pitfalls that could land you into serious trouble.

Know more about the pitfalls

1. Get it out of your head that free money means owning a credit card, for that’s not true. You should know very well that for every purchase and swipe of that card, you would have a mounting interest to pay. Until you don’t pay the outstanding amount in full, you would have interest being charged on the outstanding balance.

2. Secondly, the compounding effect is where the interest is added to your total outstanding balance every month. For example, say if you have $1000, and the rate of interest is two percent per month. If we do the math right, then the balance for the upcoming month amounts to $1020, right? By the end of the year, your total would be $1268.24; this means for $10,000, your total interest to be paid would be $2700. It’s about time to start counting your money soon.

3. Have you ever thought of the annual fees charged on your credit? There are some cards that waive it off for their customers or do not charge it at all. Some charge their customers an annual fee from the second year only and some never charge a single penny even. You could be charged $150 or more depending on the number of cards you own, and that’s why it’s imperative to not ignore these calculations and ask the credit company to waive the pitfall or peril.

4. Late payments attract fines and fees and this is the fourth peril or pitfall of credit. Hence it would be wise to say paying on time isn’t an option, even if you are paying the minimum amount due, go ahead, but do pay!! Late payments mean more money and bad credit scores to deal with along with unwanted hassles.

5. Over limit fees are a bummer, especially for those who spend a lot. Such people fall into the grips of this pitfall, because they aren’t wise enough to save themselves from overspending,

6. Finally, the last pitfall with credit comes with debts. The rate of interest is high on some cards, and along with balance outstanding, it would mean you are facing a mountain of debt, too high to cross, especially when you left it all unchecked for so long. Because you left it unchecked for so long, you now have a huge amount to repay, which some people would do only by refinancing or mortgaging their own home.

So now that you know about the pitfalls of credit, please ensure that you pay on time and payoff the whole debt properly. Be responsible for your spending habits and don’t use ignorance as a way out. This wouldn’t help you at all, especially when the mountain of debt is too high to climb.