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Escaping the Evils of Credit Cards


Night fell hours ago. The last real town is miles behind you now, past an
unmarked turnoff you’d probably miss if you tried to backtrack. But the
tank’s on empty, so you’d never make it anyway. Your phone’s said, “no
service” since the highway ended. There’s a run-down gas station up ahead.
The lights are on but your gut says not to stop. There’s no choice. You need
to fill up or you’ll be stranded at this forgotten crossroads overnight. You
creep up to the pump and step quietly out of the car. A rusted-out sign
creaks as it swings in the wind. It’s the only sound in the dead air until you
fill it with your own deafening scream. Your worst nightmare has come true.
You left your gas rewards card in your other wallet.

It didn’t have to end like this. Savvy consumers can usually avoid terrifying
tales with a better understanding of credit card mechanics...and by
remembering to bring the right card, of course.

Here are a few other scary scenarios we hope you won’t encounter.


Running from one new credit card to the next

Having a few options in your wallet, but applying for credit cards
too much or too often sends a wrong signal to lenders. Essentially, submitting
rapid-fire applications can give the impression that you’re desperate for
credit. Regardless of your creditworthiness, you’ll also be subject to credit
inquiries each time you apply. And those inquiries can temporarily lower your
credit score, as well.


Scrambling
for a cash advance

There are big differences between a debit or ATM card and a credit card. If
you try using your credit card to get cash, you’ll soon realize a few of them.
Taking a cash advance hurts in so many ways. First, the service is usually
accompanied by a fee. It’s not uncommon to pay $10 for every cash advance
you take. And that’s just the beginning. On top of the fee, you’ll pay interest
that almost certainly surpasses your purchase APR. Simply put, the cost of
cash with a credit card is no bargain.


Hiding from bigger payments

If you plan on paying off your debt by only making the minimum payments
each month, you could be costing yourself money and time. If making
minimum payments is your strategy, looking closely at your credit card
statement will show you exactly how long you’ll have to wait to be debt-free.
Saving yourself the wait and the interest you’d have to pay along the way is
as easy as beefing up those payments when you can. Lean times can force
you to make smaller payments, but paying down debt more aggressively and
remembering to avoid fees by not missing a payment are great ways to
save.


Killing all of your available credit

It might be obvious to experienced card users, but maxing out a credit card
means something is wrong with your spending strategy. If you’re able to pay
off a month’s charges without a problem but find yourself hitting the credit
limit, asking for a credit increase is an easy solution. Regardless of your
ability to pay off the debt, using most or all of your available credit also
commonly causes your credit score to dip. Aim for a utilization ratio that
doesn’t exceed 30% — and is ideally much lower than that — to keep your
credit score as high as possible

Michael is CompareCredit.com's co-founder and a credit card industry insider. He spent 15 years working for top-tier U.S. banks and helped shape the way people currently compare and apply for credit cards online.