Avoiding Trouble With Your Plastic

While credit cards are a great convenience because they allow you to make a transaction without cash, they can become white elephants if left unchecked. Some common mistakes credit card users make with their plastic include overspending, making late payments, and failing to read the fine print.

Overspending is often the biggest cause of credit card woes. A credit card is not extra money. It is money a user may or may not have in the future and it must be repaid. Many users also make late payments. Credit card companies routinely charge fees for late payments, which only serves to put the card user into further debt. Finally, there may be several hidden clauses in credit card contracts that increase your debt - so be sure to always read the fine print.

Avoid Overspending

Avoiding trouble with your "plastic" is simple, but not necessarily easy. Most people have an unspoken perception that owning a credit card means owning extra money. This is a fallacy that has led thousands of people towards bankruptcy. Credit cards are an alternative to cash, not an addition. So, don't overspend. It's really pretty simple ... if your monthly living expense budget is $2000, do not make purchases on your credit card over and above that $2000. Easy enough, right? The number one rule for credit card use is to establish a budget before using the card and always stick to that budget. If you have a rewards credit card (and repayment discipline), be sure to make all of your purchases on your card, always paying it off in full at the end of the billing cycle. That way, you reap all of the benefits of your credit card's rewards program without paying high interest fees.

Make Your Payments on Time

Every day you delay making your payment after the due date, the more it costs you. Interest rates can be as high as 20% per year, which only adds up more if you fail to make your payments. And, of course, there are late fees to contend with as well. To compound things, one late payment opens the window for the credit card company to jack up your interest rates even higher. At the very least, do not miss your monthly minimum payments each month. But you should never only pay the minimum. Every dollar paid over and above the minimum saves valuable money.

Paying Down Card Balances - A Great Investment!

If the APR on your outstanding card balance is 19%, just consider that extra $100 payment to the card issuer an investment -- an investment that just earned you 19%! For most people, aggressively paying down their credit card balances is the best investment they could possibly make, effectively eliminating those high interest finance charges the credit card companies are capturing from you just by paying down your balance.

Take Advantage of Balance Transfers

If your balance (amount owed + interest) is spiraling out of control, take advantage of balance transfer options. You can transfer your debt to a new credit card with a lower interest rate, at no (or minimal) cost - and save hundreds (or thousands) of dollars in the process.

Preventing Trouble from the Start

Of course, by taking a few simple steps, you can prevent trouble from happening in the first place. Here are some simple ways you can stay out of trouble with your credit card before you ever start using it:

1) Choose the right credit card - this is the first step in avoiding credit card trouble. Most credit cards seem alluring on the face - so look behind the scenes. Check on the policy of the credit card and the terms of your agreement. Does the credit card company charge you an annual fee? How much are they charging you? Plenty of credit cards today come with no annual fees, and would be the ideal option to choose.

2) Know your APR. The APR is the rate of interest that's applied to existing, unpaid balances. The higher the interest, the more you pay so try to find the card offers with the lowest rates of interest.

3) Research the interest free grace periods of various card offers. Some cards give you up to 45-day interest free grace period, whereby existing balances during that time do not generate any interest.

4) Does the reward feature measure up? How many points do they offer you for every dollar you spend? And, how many dollars are those points worth when you want to redeem them?

5) What are the other card benefits? Some credit cards partner with various merchants to offer more attractive benefits. These could include cash-back offers at malls, 0% fuel surcharges at the gas pump, discount vouchers every month, free access to airport lounges, cash advances with no transaction fee, free life (or health or accident or travel) insurance, theft protection (of up to a predetermined amount), etc. Choosing the card with the best benefits could save you a lot of money each month.