Sure, knowing the difference between 401k vs. ira is important when planning out your future retirement so you can ensure you have the necessary funds not only in order to pay your monthly bills, but to continue to enjoy all of life’s experiences without having to worry about work any longer. In order to free up extra money to adequately fund your retirement account, expenses will have to be reduced, but at the same time making sure that you’re building an emergency fund, and probably more importantly, staying out of debt. By using credit cards, the right way and avoiding any mistakes, you can ensure that you can focus on the important pieces, such as your keeping your credit score high to get the best interest rates on the market, and finding a credit card with the best perks, such as rewards.
Not Checking Your Credit Report
If you have applied for a mortgage, auto loan, or even a job these days, credit score seems to be the leading factor for approval (or denial) when it comes to not only deciding your interest rate but whether you can continue with the application process. By not checking your credit report at least once a year, you are setting yourself up for potential fraud, as you constantly hear these days about credit card information being caught at the gas pump or leaving your card out for too long when paying a bar tab. Even stores are getting information stolen, so it’s a good idea to make sure no accounts have been opened without your authorization.
Charging More than You Can Afford
The good thing about a credit card is that you can charge throughout the month and will not be due until next month, so at least you have a couple paychecks to put back into your account before the bill comes in, but that makes it all more important to charge what you can afford so that you can pay the entire statement balance by the due date. Anything short of that and you will begin to be charged interest, which could be upwards of 16% APR, so the more you dig yourself into a hole, the harder it can be to climb out.
Taking Out a Cash Advance
While getting into debt will cost you interest, then taking out a cash advance could be astronomical even to that already high interest rate. Sure, it may get you out of a bind, but for a better solution long-term, you may want to look into a personal or even home equity loan that would offer a much lower interest rate, saving you a significant amount over time, especially with a payoff date in sight.
Making Late Payments
Certainly, making the minimum payment will satisfy your account for the month, it will do little to put a dent into your overall balance, so if you’re looking to rid yourself completely of debt, then making large payments until the balance is good would be best. Either way, making on-time payments will continue to build your credit. By missing a payment even by a day won’t necessary ruin your credit until it’s thirty days late, but you could still be hit with a large charge or a spike in interest rate.
Maxing Out Your Card
Just as important as your payment history is your overall credit utilization, which the more you charge on your account and it reaches your limit, the lower your credit score will go. Of course, paying what you charge the next month is ideal, so if you find yourself maxing out your credit card then you should give considerable thought to changing your expenses, such as freeing up money by avoiding going out to eat, or even cutting the cable bill. Every little bit helps if it means easing off of the credit card spending. Even trying to use cash instead of credit could give yourself a nice break of only being able to spend based on the cash at hand.
Closing a Zero Balance Account
If you did find yourself in credit card trouble, finally getting out of debt is a huge accomplishment and your first reaction may be to close out your account so you don’t follow down that overspending path again. This can actually hurt your credit score as you are ending an established account, not to mention taking away from your overall credit line, so if you have balances on other accounts your score will decrease as the utilization has increased.
