No matter how responsible you are when it comes to your credit cards or borrowing money, credit cards present a number of pitfalls, and whilst you may avoid one, you will find that another one quickly emerges. Here are five credit card pitfalls to be aware of.

1. Never Ending Debt

If you only ever pay off the minimum amount on your credit card debt, you are barely even paying off the interest incurred on the debt, which means that the debt does not actually reduce, even when you make a payment, and might even be increasing, and at the very least it will seem endless.

Occasionally a card will be offered with such a low minimum monthly payment, that your debt ends up actually growing.
If you want to make sure that you pay your debt off in full, then you must make sure to make payments well in excess of the minimum monthly payment.

2. Negative Payment Hierarchy

Understanding negative payment hierarchy is critical if you are someone who borrows heavily on their credit card.
Negative payment hierarchy means when you make a payment towards you credit card debt, the debt that is paid off is the debt which incurs the least amount if interest, whilst the debt that incurs the highest interest rate is left unpaid and continues to rack up the higher interest rate.

For example if you have recently undertaken a balance transfer deal, and then used the same card to make a purchase,  part of the balance incurs zero per cent interest as part of the balance transfer deal, whilst the other part attracts standard credit cards rates of say 18 per cent. If you then make a $500 payment, thinking this will pay down the debt which attracting the high interest rate, you would be wrong. That payment will be used to paying down the debt which is attracting zero per cent interest, whilst the debt that is being charged 18 per cent interest continues to incur interest until the full debt is paid off.

The easiest way to avoid negative payment hierarchy is to have two credit cards. One card which is used for your balance transfer deal, and a separate card which you use for purchases. That way you can isolate which debt is paid off whenever you make a payment.

3. Balance Transfer Hidden Costs

There is no question that balance transfers are a great way to reduce your debt burden, but you should be aware that they come with hidden costs. For example, because of negative payment  hierarchy, a three per cent fee for a zero per cent balance transfer may end up meaning an Annual Percentage Rate (APR) of anywhere between 4 to 11 per cent.
If you want to make sure you get a low APR, look for deals which have longer transfer periods and offer lower fees, and save your cash in an account that pays a reasonable rate of interest and then pay your entire balance off at the end of the offer.

4. Typical APRs Unobtainable

APR’s quoted by credit card companies and banks are usually only ever offered to their best customers, who have the highest credit scores. For most other people the APR offered is much higher than the APR advertised.
Some lenders may even reject the application outright, and pass the details on to a less than savory lender who will make the loan.

If you do get rejected by a credit card company or bank, then avoid taking a card offered by a third party, and make sure you give your credit report a once over to check for any errors that it may contain that caused the rejection.