Credit counsellors share consumers' biggest credit card mistakes

By Emma Lunn

We all make mistakes. Credit cards make it extra easy to do so, with their tempting rewards and their buy-now-pay-later appeal. And it is the most common mistakes we make with our plastic that are the most avoidable.  

National Debtline, part of the Money Advice Trust, offers free and independent debt advice to people across the UK. As a result, its counsellors have seen their fair share of credit blunders.

We asked National Debtline spokesman Paul Crayston to poll the organization's counsellors for the biggest errors consumers make with credit cards. Here are the top 3 mistakes -- and how to avoid making them.

Paying for essential living expenses
Using your card for planned purchases and paying off the balance on time is a good way to build a healthy credit standing. Using your card in desperation to pay for living expenses like food, energy bills or housing costs? That's often the first step towards problem debt. credit-mistakes

"It is crucial not to become reliant on credit," Crayston says. "Paying for essential things on credit cards -- if not being done for the rewards and being managed carefully -- can be a sign of real financial difficulty."

Remedy:  "If you are in this situation, you need to work out a complete budget sheet for your finances to see if your income matches your essential expenditure," Crayston says.

Making a budget can help you to be more effective with your spending -- but you have to be realistic and create a budget you can stick to. If your income isn't covering your essential expenses, give National Debtline -- or another free independent debt advice service -- a call.

Borrowing to pay off existing debts
While borrowing more money to pay off existing debts is not always a mistake, doing so without consulting an expert is, according to Crayston.

"Whilst this can, on occasion, be a good solution to debt problems, that is rarely the case and there are usually far better options available," Crayston says. "Borrowing to pay off debt is a risky business, and not something to enter into lightly."

Remedy: If you're in debt, taking out further credit agreements will probably mean either expensive interest charges or paying off the debt for a longer time period. Instead, sit down and work out how you can increase your income or reduce your spending and use the extra money to repay your existing debts without having to take on more debt.

Being lured into an expensive card deal by an initial offer
Credit cards with enticing sign-up bonuses, tempting low introductory interest rates and attractive rewards might make you want to get a new piece of plastic. Yet if not used responsibly, these cards can end up costing you dearly in the form of fees and penalty interest rates.

"Gladly this is something that regulators have been cutting down on," Crayston says. "But there are still plenty of organisations offering relatively expensive credit card deals with an enticing offer for signing up. It is important to recognise that if you don't manage your card spending carefully, then the value of the offer will be quickly outweighed by the interest payments on the debt."

Remedy: Store cards are one area where a tempting initial offer -- such as money off the first purchase -- can persuade a shopper to sign up for an expensive credit card. So avoid these cards or use them wisely by taking advantage of the promotion, paying off the debt on the card and then not using it again. Better yet, shop around for a credit card that will meet your needs over the longer-term rather than just for short-term gain.

See related: How to use your credit limit to your advantage, Young bloggers share the money lessons they've learned

Published: 31 May 2012