1. Not paying on time

Making your monthly payment on time is one of the most important things you can do to protect your credit and avoid extra fees. When you borrow, make sure you will be able to make your monthly payments on time every month, or you may end up paying more than you budgeted for.

2. Only looking at the monthly payment, not the total cost

The cost of your loan is determined by the interest rate and fees. The longer the term of your loan, the more you will pay in interest. If you want to keep your monthly payment low, you can increase the amount of time you take to pay off your loan, but this means you pay more over time. EverydayMoney Credit Card Tool will help you see how increasing your payments or shortening your term can help you save money.

3. Fees

All loans have fees. Compare costs and make sure you are getting the most for your money. Understand when you will get charged for what. For example, nearly all credit cards will charge you for: missing a payment; overdraft (spending more than your credit limit); cash advance from an ATM; balance transfer (on existing balances). Some cards also charge annual fees (these usually have rewards programs). The same goes for personal loans, store credit, and mortgages. You’ll always have to pay fees. The key is to understand the fees and compare the costs of different products.

4. Increasing interest rates

For most loans, if you miss payments your interest rate will increase. For example, a credit card with a 13.99% interest rate could have the rate go to 24.99% if you miss a payment. This applies to credit cards, personal loans, debt consolidationloans, and store credit. Plus, missing payments hurts your credit rating, which will increase your interest rate on future loans (it can also increase the interest rates on loans you already have).

5. Universal default

This is a condition of some loans. With universal default, if you miss a payment on other loans your interest rate on increases. The rationale is that since you missed a payment on one loan, you might be riskier to all your other creditors. Be sure you understand the implications of missing payments and the risk that your rate may increase. You can also look for a loan or credit card that does not have universal default as a feature. Ask your lender or a customer service representative about it.

6. Floating interest rate

Lots of loans have a floating interest rate. This means the rate can change over the life of the loan. This is not necessarily a bad thing, since sometimes a fixed rate will be higher than a floating rate. But you should be aware that the rate could go up in the future.