Here's The Gravest Error You Can Make With Credit Cards: 'Like Owing Money To Loan Sharks'

Accumulating a credit card balance month-over-month is likened to "owing money to a loan shark," Noah Damsky, a chartered financial analyst, told CNBC.

Bankrate data shows this mistake is exceptionally costly, given that the current average annual percentage rate (APR) for credit cards is 20.75%, a significant increase from 16.4% two years prior.

This rate far exceeds the interest rates of other loan types, such as mortgages, making credit card debt particularly burdensome.

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To avoid the trap of high interest, don't maintain any outstanding balance on your credit cards, experts advise.

And making only the monthly minimum payments minimizes the situation.

Minimum payments are predominantly interest-based, significantly extending the debt period and the total interest paid.

Paying off a $5,000 balance at 20% APR with minimum payments can take over 277 months, amounting to $7,723 in interest alone.

Daniel Masuda Lehrman, a certified financial planner, emphasizes that any unpaid balance will exponentially become more burdensome to clear due to compounding interest, whether by making minimum payments or failing to pay off the balance each month.

Missing minimum payments can further exacerbate the situation, incurring late fees, higher APRs, and potentially damaging your credit score.

Financial planners advise paying off your credit card balance in full each month to mitigate these risks. Utilizing credit cards for expenses that can be promptly paid off, ideally within a month, can help avoid interest charges thanks to most cards' grace periods, reports the outlet. 

For those struggling with existing credit card debt, financial planners suggest exploring options such as transferring the balance to a card offering an introductory 0% APR.

This can provide a window to pay down the debt more manageably. Lehrman also advises against using credit cards if you cannot afford to clear the monthly balance, recommending using debit cards or emergency funds as safer alternatives.

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