Credit cards bring financial freedom by providing quick and easy money when in need. However, if you are not judicious, credit cards could land you in -soup. The credit provided is free only for a limited period, beyond which you have to pay interest on it. The more time you take to repay your credit card debt, the more interest it accumulates. Having repaid your debt, you may not want to fall into the trap again. There are a few mistakes you could make while trying to avoid such a situation again. Read on to know more about them.
1. Not having an emergency fund - Emergencies seldom arrive with a warning. An emergency fund is like an umbrella that can protect you from your financial woes. It is advisable to save at least three months of your salary in an emergency fund. You can keep this amount in a separate bank account to ensure you use it only during real emergencies.
2. Not using your credit card again - This episode may dissuade you from using your credit card in the future. However, if used correctly, credit cards can help in building a good credit score. After all, your prospects of getting a bank loan depend upon your credit history. You may want to be careful of a few things to make credit cards work in your favour. Firstly, never max out your credit card. Reaching the limit of your card may signify you are short on funds. Secondly, always pay your credit card bills on time. Set reminders on your phone if you are not too good with dates.
3. Piling up debt again - It may now be a good time to reflect and understand how you fell into this trap. It could be because you did not have an emergency plan in place. Or you were unable to control your shopping urges. Perhaps, you haven’t created a budget to take care of monthly expense. To get things back on track, create a budget for your costs. A sufficient budget is one where you save first and spend what is left. The key is to avoid the trigger that got you in the sticky situation in the first place.
4. Not having any financial goals - One untoward incident can push you away from your financial goals. You are likely to focus on clearing your debt putting your financial goals on the back burner. These goals can provide you and your family with a better future. Continue saving for your retirement fund and keep contributing to your children’s education fund.
5. Applying for too many credit cards - Every credit application reflects in your report. You stand a risk of your application being rejected if you apply for too many credit cards in a short period. Lenders tend to be suspicious about multiple credit card requests.
The key to avoiding credit card debt in the future is to recognise the errors and avoid succumbing to them. Staying away from past mistakes can bring your finances back on track.