3 Big Credit Card Mistakes to Avoid

Being a financial advisor with an expertise in professional athletes, I’ve worked with clients in some rather stratospheric income ranges over the years.  A great financial advisor will help you avoid many of the pitfalls that can take down even the wealthiest of individuals over time (just look at Allen Iverson’s bankruptcy story), but anyone can let their credit card spiral out of control by making only a handful of key mistakes.  Here are 3 BIG mistakes that I strongly recommend you avoid making, if you want to keep your credit card debt from taking over your finances.

1. TREAT YOUR CREDIT LINE LIKE MONEY IN THE BANK.  If I had a dime for every time someone treated a credit line like a bank account, I’d have more money than I’d ever know what to do with.  A credit card is, in essence, the exact, polar opposite of money in the bank.  Some people consider it a license to spend money, but a credit card is really just a tool to take money out of your bank account.  If you can alter your mindset, your perspective, on what  a credit card truly does, if you can master this concept, then you are well on your way to avoiding any serious debt.
2. USE A CARD FOR CASH ADVANCES.  If you’re not yet aware of the evils of cash advances on a credit card, go grab any current credit card statement and look for the CASH ADVANCE APR.  If credit card companies were to honestly label these, it would be the APR with the skull and crossbones next to it!  Not only are the interest rates absolutely astronomical, but they tend to have Cash Advance Fees added on for good measure.  Another term for it could be this: “The poor get poorer.”  Taking a cash advance off a credit card can blow up your balance so fast that you might not even realize just how far south things have gone.  So avoid cash advances.  Period.  Now sometimes a credit card company will send you special offer, low-APR balance transfer checks, which you can essentially use for cash advances in an emergency, or of course to transfer balances from a higher interest account.  These checks typically offer a really low interest rate for a fixed time period, and then, when that time period ends, they balloon to a higher rate — although oftentimes that higher rate is still not as high as a Cash Advance rate.  While these types of checks can serve a purpose and are certainly much better than cash advances, it’s still best to avoid them whenever possible.
3. MAKE ANY LATE PAYMENTS.  Look, if you’re going to get a credit card, then you must be responsible enough to pay your bill when required, and to pay it on time, every time.  We’re all adults here, right?  So if you’re taking on the responsibility of a credit card, understand that the bank giving you that card expects you to act responsibly.  The minute you pay a credit card bill late, many credit card companies will look to drop the hammer on you — including hiking up the APR on your card so fast that last month’s purchase now looks like this month’s cash advance (see number 2 above)!  Late payments can then get reported to the credit bureaus, and can show up on your credit report — all very bad things that you don’t ever want to happen.  Make sure you pay on time, and keep this problem from ever starting up.

—Billy Crafton, Financial Advisor