Five mistakes you're probably making with your credit cards

Are you carrying credit cards with balances? Do you know how to make your cards work FOR you instead of against you? What about your card’s interest rate? Do you know what it is?

You’re not alone. Many Americans aren’t as knowledgeable about the benefits and drawbacks of their credit cards as they should be.

We’re here to help with that. Avoid these common credit card pitfalls.

Mistake #1: Not having a payoff strategy

Too many Americans have balances on multiple cards. They may pay more than the minimum, but they are basically just treading water and not making any progress paying off their debt.

A better option: The smartest move is to make minimum payments on ALL cards and then apply your cash savings as an extra payment to the card with the highest interest rate. When it's paid off, move on to the next, and then so on.

Pro tip: If you don't think you have the discipline to apply that extra cash to your card consistently, try this route: Pay off the card with the lowest balance first. Then move to the next. You won't save as much money in interest, but it will make you feel like you are accomplishing something fairly quickly.

Yes!

Mistake #2: Overlooking rewards

Many credit cards come with rewards or points that can pay for future airline tickets, provide cash rebates and other perks. Yet plenty of cardholders don’t fully utilize these benefits, according to a survey by the American Institute of CPAs.

Just 15 percent of 1,000-plus respondents said they had ever used card reward points to pay for all or part of a vacation.

Only 7 percent said they used reward points to pay for any part of their most recent vacation, and  just 1 percent used points to pay for the entire trip.

A better option: Keep track of your benefits and use them because they often expire. So it's like giving away free money. Who wants to do that? And if you aren't getting benefits, find a card that matches your interests. For example, if you like to travel, consider an airline card that gives you miles.

Mistake #3: Not knowing your interest rate

The same survey found many consumers don’t know their own cards terms.

For example, a low annual percentage rate or APR was cited by 37 percent as the most important feature on credit cards, yet 43 percent admitted they didn’t know the approximate interest rate on their own cards or the annual fees charged.

As an FYI: Interest rates typically range from 15 to 21 percent a year, depending on the card and how good your credit is.

A better option: Check your card terms once a year and comparison shop — much like you would for any other product.

Pro tip: Websites like bankrate.com make comparison shopping easy. Many card companies offer incentives to attract your business, including low introductory interest rates, waived annual fees and juicy reward bonuses.

Mistake #4: Only paying the minimum

The minimum monthly payment on a credit card is just that — the smallest dollar amount you can pay to remain in good standing and avoid a delinquency and possibly late-payment fees. Yet paying just the minimum isn’t wise. Doing so can keep you almost perpetually in debt while still facing double-digit interest rates.

A better option: See Mistake #1. Find a payoff strategy that works for you, either by paying off the highest-interest card first or the one with the lowest balance to knock it out of the way.

Pro tip: Pretend the minimum payoff amount is higher than it is. Researchers were studying why nearly one-third of borrowers only make the minimum payment. While some do lack the cash to pay more, others apparently just looked at the minimum payment figured and applied that to the balance, without even giving it much though.

Don’t fall into this trap. Why?

It would take more than 10 years to pay off a mere $2,000 card balance on a typical card, according to researchers at the Wharton School of Business at the University of Pennsylvania.

Ouch.

Mistake #5: Ignoring other card benefits

Have you ever read the user or customer agreement that comes with your card?

Neither have most other people. It’s typically mailed to you once a year or so. You also likely find it posted on your card company’s website.

A better option: Read it. While you're checking up on interest rates, fees and other terms on your credit cards, be sure to analyze the other benefits of card ownership. Among the things you might be surprised to learn that your card provides:

• Insurance coverage on rental cars.
• Damage/theft coverage on merchandise purchases.
• Warranties that exceed the manufacturer's warranty.
• Fraud protection that is more generous than what is given with a debit card.

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