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Common Credit Mistakes

Now that you know what credit is and the different types available, let’s discuss its uses. Like other forms of money, credit can be used and managed correctly and incorrectly. Let’s start with what NOT to do with your credit.

Paying only the minimum monthly payment. Don’t do this. If you only pay the minimum every month, you’re actually just extending the life of your debt and really only paying off interest—not the principal, which is the important part. If you can’t afford to pay more than your minimum payment (calculated differently by various credit card companies) you can consider taking out a personal loan at a better rate to pay off your total balance.

Taking out cash advances. Definitely don’t do this. Taking out a cash advance on your credit card is an irresponsible way to get cash fast. You’ll be charged a higher-than-normal interest rate and there’s no grace period which means you’ll owe more on the money you take out.7

Spending unnecessarily to accrue points. Sure, some airline miles or basketball tickets would be great, but what are you spending to get them? If you’re desperate to collect rewards points, be sure to stop and ask if you’re collecting debt just to do it. Credit cards are a tool and rewards—as great as they are—can encourage misuse of that tool.

Not using credit cards. If you think credit is big, scary and complex, then you might be tempted to just avoid it all together. But when you do that, you actually handicap yourself. If you have a card and you let it go unused, the lender may close that account which can harm your credit. If you don’t have credit cards and aren’t interested in getting them, you should know that that will make it more difficult for lenders to assess your creditworthiness when you need credit, like when you’re trying to buy a house or car.8

Using only credit cards. Credit, when used correctly, is useful and beneficial. Credit, when used exclusively, is a sure-fire way to rack up unintended debt. Credit isn’t meant to be your primary, everyday form of payment. It’s best used in emergencies, or strategically. If you’re using a credit card for you daily Starbucks—cut out that coffee or cut up your credit card. You’ll be better off!9

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