Charging purchases and borrowing cash with credit cards can be a nice convenience, but using credit cards involves risk. Avoiding the risk requires effort on your part that can more than offset the convenience. Not putting in the effort to avoid the risks can cost you a lot of money as well as damage your credit.

Overspending

It is very easy to charge more than you can afford to pay back, especially when you lose sight of the fact that credit cards are a source of debt instead of “free” money. Credit card debt can get out of control quickly with careless charging and failure to pay the monthly statement's new balance in full each month. The exorbitant interest rates charged on credit cards contribute to a rapid increase in unpaid credit card balances.

Limiting and tracking credit card usage is how overspending, with the resulting credit card debt, can be avoided. Ways to do this include:

• setting a limit on monthly charges that you can afford to pay in full;
• keeping track of all credit card charges to stay within your charging limit;
• paying the statement’s new balance in full every month.

Paying interest

Credit card companies charge interest, at an exorbitant rate, on a credit card account unpaid balance. The only way to avoid paying interest is to pay the monthly statement's new balance in full every month.

The simple way to ensure that each statement is paid in full and on time is to set up automatic payments with the credit card company for the new balance amount.

Late fees

Forgetting a credit card payment or making a payment after the due date will result in a late fee being added to the credit card balance. Late fees are handled the same as purchase transactions. They appear on the statement after which they are incurred and are included in the calculation of interest on an unpaid balance.

Missing and making late payments can also have a negative impact on your credit score.

As with interest, setting up automatic credit card payments for the statement's new balance amount will avoid late fees.

Fraud

Credit cards are exceptionally vulnerable to being used without your knowledge. You do not have to pay for unauthorized use of your credit card as long as you identify the fraudulent charges and dispute those charges within 60 days after the date of the statement on which the bogus charges first appeared.

Protecting yourself from credit card theft requires that you pay attention to the details.

• Keep a record of all credit card charges that you make or authorize.
• Reconcile credit card statements each month shortly after receipt.
• Immediately dispute any fraudulent charges on a statement following the instructions printed on the back of the statement.

When a credit card company receives a dispute, they are required to investigate. While the investigation is being conducted, you are not required to pay the disputed charges nor can the credit card company charge interest on those charges. If the investigation shows the disputed charges are fraudulent, the charges are deleted from your account.

If you fail to dispute charges within 60 days after the date of the statement on which the bogus charges first appear, you are responsible for paying those fraudulent charges.