While credit cards are widely spread in the region and can be a very useful tool to make payments, however, it is equally important to understand the common mistakes that we make on a credit card.
Below are simple tips to help you avoid making the typical mistakes on a credit card:
- Paying only the minimum balance – paying only the minimum balance and regular use of your credit card may put you in a situation where you have maxed out your credit card limit, piled up debt and unable to make the repayments. On top of the principal repayment, you have the rate that keeps accumulating on a monthly basis. Make sure you always spend what you can afford and pay in full at the end of the month.
- Swiping the credit card feels easier than paying in cash – We always want the latest mobile phone or the latest gadget on the market but do we really need it? Can we afford it? In most cases, you will realize that it is not and you should always ask yourself before swiping any of your credit cards whether this expense is planned for and if you will be able to make the monthly repayments on the credit card. Remember, that buying an item on a credit card which you do not pay in full at the end of the month will cost you more than the actual price of the item.
- Paying by credit card to get the rewards – Some of us get lured into reward programs and we forget that all the cashback or miles we earn is in fact paid for by either the annual fee on the card or the interest we pay in the event we do not pay off our credit card in full.
- Using your credit card to withdraw cash – Based on our recent survey conducted in Saudi Arabia, Saudi residents use their credit cards to take cash advances. While this could be due to the fact that personal loans are not available widely to employees of the private sector, it leads to a very expensive way of getting a loan as the interest on cash withdrawal on a credit card is significantly higher. Make sure you know what the rate of cash advance is on your credit card and safer to keep this use for emergency purposes only.