Hate Throwing Away Money? Then Don't Make This Credit Card Mistake

It's a blunder you'll really want to avoid.

There are plenty of ways you might benefit from using credit cards regularly. For one thing, most credit cards offer opportunities to earn rewards or cash back on your purchases. That's free money you can pocket without having to do anything special other than swipe or insert a piece of plastic (or enter your card number on a website).

Furthermore, when you shop with credit cards, you get some protection. Say you buy an item you want to return, only the merchant in question gives you a hard time about it. For a cash purchase, you may be out of luck. But if you're talking about a credit card purchase, you can dispute the charge and let your credit card company handle that battle.

But while credit cards certainly have their perks, there's one drawback associated with them. And it can be a costly one.

You could end wasting a lot of money

Credit cards give you a spending limit that's based on various factors, including your credit score and income. But your spending limit isn't necessarily reflective of the amount you can actually afford to spend each month. And if you rack up too many charges and end up with a balance you can't pay in full, you'll effectively wind up throwing your money away.

Why so? As soon as you carry a balance forward on a credit card, you sign up to pay interest on it (the one exception being if you have a 0% introductory rate on your credit card, but even there, you could run into your trouble with interest charges if your card isn't paid in full in a timely manner). And so if you don't like the idea of wasting money on interest, the solution is simple: Ignore your credit card's spending limit and set your own.

How do you determine that? Set yourself up with a budget that maps out your monthly expenses. From there, see what you can afford to spend in different categories. It may be that you can swing a monthly $100 cable bill and that you can afford to spend $100 a month on rideshares -- but only if you keep your restaurant and takeout tab to $100.

Obviously, the specifics of how much you can afford to spend in one category versus another will hinge on what your non-negotiable bills look like -- things like your rent, utilities, and so forth. But if you set your own spending limit and stick to it, you'll avoid carrying credit card balances -- and avoid having to pay interest.

Don't spend more than necessary

Often, people are drawn to make purchases when the items they want go on sale. But remember, if you purchase a sale item on a credit card and don't pay your bill in full, you might negate the benefit of that sale and end up overpaying.

Say an item you've wanted for a while normally costs $100 but is marked down to $80. If you charge that $80 on a credit card and carry your balance forward for a long time, you might end up spending more than that original $100 on it when you account for interest charges. And that doesn't make sense at all.

All told, carrying a credit card balance means wasting money. So it's best to avoid that scenario at all costs.