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For most people, credit cards are an indispensable tool. They’re a convenient, secure payment method that also lets you earn rewards and build credit that will help you later on in your financial journey.
But as a tool, credit cards must be used carefully. Otherwise, you could easily make mistakes that cost you money, wreck your credit, or land you in credit card debt.
The typical consumer has three open credit cards and a balance of $5,525 in 2021, according to a report by the credit bureau Experian. If this sounds like you, it may be time to reevaluate your credit card usage; carrying a balance on your card from month to month can cause you to damage your credit and rack up debt.
Along with carrying a balance on your card, here are the six most common credit card mistakes consumers make — and how to avoid them.
1. Never Paying Off Your Card in Full
At the end of every billing cycle, your credit card company will list your statement balance and a minimum payment amount. The minimum payment is usually a small percentage of the statement balance, often 2% to 4%.
But paying only the minimum balance is one of the most costly mistakes you can make.
It’s essential to pay off the statement balance in full, says Madison Block, a senior marketing communications associate with American Consumer Credit Counseling, a national non-profit credit counseling agency.
“Only paying the minimum will ensure that you stay current on your payments, but it means that interest will accumulate because you aren’t paying the full balance,” Block says. “It will prolong the amount of time you’re paying off your debt as well. Interest rates on credit cards can be high, so if you don’t pay off your balance in full every month, the interest can add up quickly.”
For example, if you have a credit card with a $1,000 balance and 16% APR, and you only pay the minimum payment of 2% of the balance each month, it would take you 126 months to pay off your debt. And you’d pay a total of $994.19 in interest — almost as much as the original balance.
Constantly carrying a balance will also raise your credit utilization ratio — your total debts divided by your total available credit — which could lower your credit score.