5 Big Mistakes Even Smart People Make with Credit Cards

1. Not having a payback plan -it’s so easy to carry over a balance on a credit card and pay a minimum balance every month, people often pull out their credit cards assuming they’ll just figure out how to pay off the debt as income becomes available. Instead, remember that credit card transactions are, in essence, loans-pay cash or don't buy it.

2. Treating credit as “extra” money - Credit is not extra money. In fact, it often costs money if you have to pay interest. Instead, credit is just the money you promise a lender you’ll have later. That means you are limited by your existing budget, regardless of what your credit limit on the card actually might be.

3. Not knowing which card to pay off first — Mathematically, you’ll save money and get out of debt faster if you push as much as you can toward the card with the highest interest rate first. Remember that each time you eliminate a card, take the money you’d allocated for payment and put it toward the card with the next card.

4. Assuming you’ll remember every payment — At the absolute minimum, set yourself a reminder on your smart phone or calendar to access your account and pay. Better yet, set up auto-pay or use e-billing through your financial institutions online banking system.

5. Handling opening and closing of accounts poorly — Every time you open a new credit card account, you should ask yourself how it would affect your debt-to-income ratio if you maxed out your credit lines.

Try not to open a bunch of new accounts in a short time frame, as creditors can wonder why you need so much credit all of a sudden. If you already have accounts, don’t let any sit idle; make occasional purchases to keep them active. If you must close an account, try to keep ones that have the longest history for you and would best show long-term evidence of spending and the ability to pay.