Published on 06/16/2008

Perhaps your credit mistakes are the reason why bills continually pour into your mail box despite debt consolidation efforts, struggles to payoff and/or to negotiate debt settlement chargeoffs. Read our free debt relief advice.

Common credit mistakes that may perpetuate or increase debt

Not drafting a budget and sticking to it. CreditFederal offers free financial software tools (for Windows computers) to help you create a budget, as well as to manage and track expenses. You may think you can manage a budget in your mind; without putting it down onto paper, but you may very well be surprised at just how much money you spend per month, and how much is wasteful. Just creating a budget may be the one thing that pulls you out of the debt cycle. Also, you'll likely have fun doing it, as you see savings; instead of debt, piling up in your bank account! There's definitely a thrill to seeing saved money adding up month-to-month. After you create your budget and start reducing wasteful spending, get a poster board and draw a thermometer-style chart to track your savings. Hang the chart on the wall and it will be your reminder to budget, save, and plan for the future. Then, instead of bragging to friends about your new TV, jewelry, etc, brag about your savings!
Not having an emergency savings account. This is part of not having a budget. If you have an emergency savings account, when times get tough you won't be forced to charge expenses to a credit card which would likely further perpetuate your debt cycle.
Not checking your credit report for errors. Take advantage of your annual free credit report to see what's on your report. Credit report errors can cost you, because creditors will assume you are a high risk and will charge you higher interest rates, even if the errors do not pertain to the line of credit you have with them. Many employers also review credit reports before hiring or granting a promotion. And what if you're the victim of indentity theft? It's best to catch these errors and fraud ASAP. The Fair Credit Reporting Act allows for the correction or deletion of inaccurate, outdated or unverifiable information, provided that a reinvestigation into the disputed data comes out in your favor. Read our article on how to Dispute Credit Report Errors.
Not prioritizing bills when money is short. Some bills are more important; to you, than others. Your home mortgage is one example. Some people make the mistake of paying the first bills to arrive first. But what if your credit card bills, but then suffer a costly emergency and cannot pay your mortgage or car payment? Make your mortgage/rent your first priority, then utilities, groceries and medical care, and then your car loan. Place more emphasis on secured loans and co-signer loans over unsecured loans and credit cards.
Using credit cards for every purchase instead of cash. This is a habit many people have. They will charge purchases even when they have cash. Though you may have the best intention of paying the charges in full during the grace period, you may unconsciously think you have more available money than what you really have. How? Because you see all the cash in your purse/wallet, the cash you didn't use to make those purchases which you still owe. Don't fool yourself into thinking you have more cash than you actually have. Pay those small, everyday, casual or recurring charges with cash.
Not paying bills on time. This is more than a mere inconvenience to your creditor, this is a COST to you in the form of late fees and possibly higher interest rates.
Making only minimum credit card payments. Although paying the minimum is better than not paying at all, it doesn't help you much to get your balance paid off nor pay down interest charges that are being re-charged every month. You actually end up paying interest on interest charges. Even if you can't pay the balance in full, pay as much as you can.
Transferring debt from one card to another with a lower (or 0 intro) rate, but then charging more debt instead of using the intro period to pay down the balance. Although transferring balances from high rate cards to a low; or 0 intro, rate card can save you money, adding more debt to it isn't wise. Once the intro period expires you have more debt accruing interest, and what if you lose your income? And what if the new charges void the 0 intro rate period because you exceed the total credit limit? You could be setting yourself up for disaster. Transfer balances, but don't make any additional charges during the intro period.
Not asking for creditor assistance when you're in financial trouble. Ask creditors if they could lower your interest rate (if not over a long term, at lease temporarily) or if they can stretch the repayment period over a longer term and/or remove late payment fees. Some creditors; particularly credit card companies, have assistance programs that offer short term help.
Improperly using store charge cards. Store charge cards can offer cost savings in the form of discounts, but if you don't pay off the charges in full each month, or if the card charges fees or high interest, you may be losing more money that what you save in discounts. If you must charge and cannot pay in full before interest charges begin, you may be better off forgetting the discount and simply using your standard, lower interest rate credit card.