5 reasons you're failing at credit cards

Credit cards are a good servant but a cruel master. Sadly, for many people, the latter is the reality.

When you’re in control, credit cards offer interest-free loans and free rewards, not to mention plenty of convenience.

However, when you let your credit cards control you, they can suck up your money and leave you mired in debt.

If it seems like your credit cards are doing you more harm than good, it could be because you’re making one or more of the mistakes listed below.

1. You pay interest

Do you pay interest on your credit cards? If so, you’re almost certainly making a mistake. We won’t say you’re ‘definitely’ making a mistake, because there might well be a valid reason why you have to rack up interest sometimes. But as a general rule, paying interest is a waste of money.

You heard right – paying interest is optional. If you pay off your entire bill every month, you’ll never have to pay a cent of interest. So it doesn’t matter if you’ve got the lowest-rate credit card on the market (currently 7.99 per cent) or the highest (24.99 per cent) – you can choose not to pay any interest.

2. You make the minimum repayment

One reason people don’t pay off their entire bill every month is because they don’t realise it’s necessary. Some people think all the need to do is make the minimum monthly repayment, which is usually about 2 per cent of whatever they owe. However, the minimum repayment doesn’t protect you from being charged interest – it only protects you from being charged late payment fees.

Imagine you spent $1,500 on your credit card and you only made the minimum repayments. If your card charged 15 per cent interest, it would take you more than 11 years to repay the entire debt, at a total cost of $2,885.

3. You don’t read the fine print

Another reason people don’t realise they need to pay off their entire bill each month is because they misunderstand what “up to 44/55/62 days’ interest-free” means. The reason credit card companies use the words “up to” is because they rarely give you 44/55/62 days’ interest-free.

If your credit card has an interest-free period of “up to 44 days”, it doesn’t mean that the 44 days starts whenever you make a particular purchase. The 44 days actually starts at the beginning of a credit card statement cycle and ends with that statement’s due date.

Generally, there’s a 30-day gap between each credit card statement, which means that “up to 44 days” generally equates to one statement cycle plus 14 days. For example:

• 1 September – statement period 1 begins
• 30 September – statement period 1 ends
• 1 October – statement period 2 begins
• 14 October – statement 1 due date

So to avoid interest, any purchase made between 1 September and 30 September would have to be repaid by 14 October. That means a purchase made on 1 September would have an interest-free period of 44 days, while a purchase made on 30 September would have an interest-free period of only 14 days.

4. You pay annual fees

Paying annual fees is a bit like paying interest – there may be occasions when it’s justified, but it’s generally an unnecessary expense. If you do a quick search at the RateCity credit card comparison site, you’ll find that 26 of the 182 cards don’t have an annual fee, so there are plenty of fee-free options on the market. For the other cards, the average annual fee is $131.19, while the highest annual fee is $700.

5. You spend extra for rewards points

Sometimes, people will buy things they wouldn’t otherwise buy just to earn rewards points. This might seem like smart spending, until you realise that you might have to spend more than $100 just to earn $1 of rewards.

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