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The financial guru, Dave Ramsey, advises you to avoid credit entirely. We disagree with this. Credit can be your friend. In fact, if you’re typical, credit can help you achieve goals such as buying a home, a car or achieving financial security. The important thing is to use it wisely. Watch your debt-to-credit ratio and make all of your payments on time every time. Try to not carry any balances forward because you would then be required to pay interest, which is just money out of your pocket.
More tips about credit card mistakes
Here are some other mistakes you could make with credit cards. Don’t …
- Ask for a lower limit
- Pay off an installment loan early
- Open a bunch of cards at once
- Settle a debt for less than you owe
- Use prepaid cards to rebuild your credit
- Check your credit daily
- Stop using your credit cards entirely
How the credit card companies make money
The credit card companies don't make much money if you pay off your balances every month. Their business model is based on the fact that once you start carrying balances forward, you're likely to begin making just their minimum monthly payments.
Next time you receive a statement from one of your credit card companies, compare the minimum payment required to your interest charge for that month. It's likely that the minimum payment will be about the same as the interest charge. If this is the case, it means that so long as you make only the minimum payment, you're doing nothing to reduce your balance and could literally be in debt forever.
Here’s a short video that reveals five credit card mistakes to avoid at all costs.