Credit Card Mistakes – How Bad Are Yours? (Part 3 of 3)

October 31, 2009

Credit Basics

Credit card mistakes and blunders are common.  Experts graded a range of credit card mistakes on a scale from 1 (losing a few bucks to a cash machine) to 10 (losing the house). Find out which worry the pros most — and which may (almost) get a free pass.

8) Debt Settlement Plans
How bad is it? 9.5
The details:
If you’re overwhelmed by debt, negotiating down your balance with the credit card company (also called debt settlement) sometimes helps you pay pennies on the dollar on your debt — but you’ll pay a steep price. First, there’s the tax hit you’ll take for the amount of debt that’s forgiven — it will count as income during that tax year. And your credit score will be decimated, so don’t expect you’ll be able to take out a loan soon after consolidation. Next to bankruptcy, debt settlement “is the most negative thing you can do to your credit score,” says Francis.

9) Getting a Cash Advance?
How bad is it? 8
The details:
It may feel like free money, but the truth is that it’s anything but: You’ll likely Credit card Debt and Debt Settlement Tipshave a fee associated with the advance, and you’ll likely pay a higher interest rate than you would by using the card associated with it. “You also have no grace period,” notes Cunningham. “You’ll start accruing interest from the moment you get the money.” While these are all dangerous attributes in and of themselves, they’re not the worst part, says Cunningham. “When you start using cash advances, you have to understand why you’re using them as they’re likely symptomatic of a deep financial problem.”

10) Using a Card in a Pinch
How bad is it? 2
The details:
If the fridge went on the fritz or the furnace conked out in mid-January, you might not have the means to fund its immediate replacement. Putting the bill on a credit card — and paying it off quickly over the course of a few months — is a pretty solid option, says Cunningham. “You don’t want something like that to become standard operating procedure,” says Cunningham. “But it’s OK to have a balance on a card for a few months when you’re going through a rough patch in your financial life. Just make sure it’s on a card without an annual fee or with a very low annual fee.”

by Erin Peterson

This concludes the Credit Card Mistakes – How Bad Are Yours? blog.

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