Do you use a rewards credit card to pay for your everyday expenses?
Used the right way, a rewards card can earn you cash back or travel points and give you better consumer protections than swiping a debit card.
And it has the blessing of money expert Clark Howard, provided that you are following his rules for using credit cards.
But take note: There are some risks associated with using credit cards.
In this article, I’m going to highlight some of the most common mistakes that people make with them and provide some common sense solutions to avoid them.
5 Common Credit Card Mistakes To Avoid
1. Not Paying Your Balance in Full Every Month
It wouldn’t be a proper Team Clark credit card article if I didn’t start with this disclaimer: We only endorse using credit cards as a primary payment method if you’re able to pay your card balance in full by the end of each billing cycle.
With the average credit card interest APR above 20%, it simply doesn’t make sense to carry a balance on a credit card.
Not only does that APR dwarf the cash back you can earn on your purchases, it also washes away any of the benefits or perks that you could receive from the card.
If your spending with plastic is out of control and you can’t pay your full bill, consider switching to a cash-based purchasing method wherever possible.
If you find yourself in a tough spot needing to make a purchase you cannot afford, we suggest exhausting other resources, such as a small fixed-rate loan from your local credit union, to borrow the money you need at a rate much lower than the APR a credit card will charge.
2. Paying Annual Fees on Cards You Don’t Use Often
Most of the “top tier” travel credit cards come with a hefty annual fee. Some of them now charge upwards of $900 per year just for the privilege of carrying them.
The value in paying for these cards is in luxury benefits like airport lounge access, airline or hotel status upgrades, and other statement credit opportunities.
And while frequent travelers may be able to obtain value in the perks and benefits from those cards, it’s much harder for people who travel occasionally to see a positive return on that annual fee investment.
That’s why Clark often recommends that non-frequent travelers stick to cash back credit cards with no annual fee for best results.
3. Leaving Rewards on the Table
If you’re the type of person who carries multiple credit cards in your wallet, you’ll want to make sure that you’re maximizing your rewards-earning opportunities on each purchase.
It may not seem like a big deal on a single transaction, but optimizing the rewards you get on hundreds or thousands of transactions over the course of years can really add up.
For example, if you’re going out to eat dinner, make sure you carry the credit card that earns you the most rewards for dining. Or if you’re going grocery shopping, use the card that rewards supermarket purchases best.
Team Clark recommends using a 2% cash back credit card as a “baseline” rewards mark for everyday purchases. So any card that offers rewards beyond that in select categories should be considered for those purchases.
There are apps out there that can help with this, but Clark also often references a labeling system a listener once suggested as a way to keep things straight.
4. Using Swiping As An Excuse for Ignoring Your Budget
It is easier than ever to pay with a credit card. You don’t even need your actual card to swipe to pay anymore. It can be as simple as tapping your smartwatch at the point-of-sale and you’re on your way with the items you decided to purchase.
This convenience is a great timesaver. But far too many consumers allow that convenience to slip into overspending.
Stick to your budget and earn your rewards with credit cards. If you can’t trust yourself to do that, we suggest instead going to the store with cash to make the purchases you need.
5. Paying Your Bill Without Reviewing Your Transactions Each Month
We all love to pay our bills as efficiently as possible, but credit cards are not something to simply pay blindly when the balance comes due. You really should set aside a few minutes to review your credit card statement each month.
There are a few reasons this is beneficial:
You can flag any fraudulent purchases that you didn’t authorize
You can identify any purchases that you did make but may have been overcharged
You gain a better understanding of your own spending habits and can identify areas you may be overspending
Do you have a credit card lesson you learned the hard way? Want to warn others? We’d love to hear about it in the Clark.com community.
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