Getting your first credit card can be exciting. It means you can spend on things you may previously not have been able to afford. This can feel like freedom, compounded by the fact that multiple people will offer you a credit card relatively easily.
This does not come without potential costs and downsides. According to the Federal reserve bank of New York, Americans’ total credit card balance at the end of 2022 was $986 billion.
In the UK, almost half of the people get their first credit card between the ages of 18 and 24 and the average monthly spend on a credit card is £333. This can lead to a spiral of debt and significant financial problems for the uneducated.
That is not to say all credit cards are bad; they can have significant benefits. In this blog article, we will talk about the downsides of credit cards. Next week, to even things up, I will do another blog on the benefits of using credit cards and how to get the most out of them.
Here are the five major traps of using a credit card and how to avoid them:
1 — Hidden fees
Credit cards can be a useful tool for managing finances, but they also come with hidden fees that can significantly impact your finances. These fees include annual fees, late payment fees, over-limit fees, and foreign transaction fees.
Credit card companies charge annual fees for the privilege of using their card. These fees can range from a few dollars/pounds to several hundred dollars/pounds, depending on the credit card’s perks and rewards. It’s important to read the fine print before signing up for a credit card to understand what fees you will be charged.
Late payment fees are charged when you miss a payment deadline. These fees can be as high as £35 or more and quickly add up if you consistently miss payments. It’s important to make at least the minimum payment on time to avoid these fees.
Over-limit fees are charged when you exceed your credit limit. These fees are typically around $35 or more and can be charged each…