Explore All the Things You Should NEVER Put on a Card

Editorial Note:

Paying by credit card can be a great idea. It’s convenient and carries less liability than using your debit card. It can help you build credit when you pay it off on time. Earning rewards make credit cards even better. Yet, there are things you should NEVER put on a card. Let’s explore what these items are. By the end of this article, you should understand when paying by credit card can be a bad idea.

Mortgage Payments

Paying your mortgage with your credit card may sound like an excellent idea. Think of all the credit card rewards you can earn. You would be on the highest tier of the reward program in no time. The problem is that you’re putting a substantial monthly expense on your credit card. This sharply increases your credit card utilization and can threaten your ability to pay off your monthly balance.

Consider that the interest rate on your credit card is much higher than the one on your mortgage. If you are unable to pay off your monthly balance fully, you’re effectively paying interest twice. All these actions will cause your credit score to drop. Many mortgage companies don’t allow you to pay your bill with your credit card. Some third-party companies will allow you to do so, but they add convenience fees to each payment. Overall, it’s a process with too much risk and the very little payoff in the end. (Many credit card companies place a cap on benefits anyway). Just don’t do it.

Household Bills

Unlike paying your mortgage, many utility companies let you pay your bills with a credit card, sometimes without a fee. You can set up automatic payments so that you won’t pay late. This seems like a great idea; why wouldn’t you want to use your credit card?

It’s easy to lose track of money spent, and soon your credit card balance is out of control. Flat, fixed rate bills like a cell phone or cable bills aren’t immune either. If you miss crucial communication, like a rate increase or a discount expiring, your bill can creep higher. Variable rate bills based usage, like a water bill, can quickly get you in trouble if you leak. You risk exceeding your credit card limit and having penalties added to your account.

Household bills should be linked to your debit card. Regardless of which card you use, always pay attention to your payments and balances. Overdraw your debit or credit card, and you’re facing nasty overdraft fees.

Automobiles

Credit Card Rewards

Like your mortgage, a car payment potentially earns so many rewards points. There is a way to pay for your car using your credit card successfully. You must always pay off monthly balances in full by the due date. This can be particularly helpful in avoiding interest.

This strategy does not come without risks. A monthly car payment can escalate utilization levels, which will lower your credit score. Worse, if you can’t pay off your bill one month, your credit score will drop even more. Both utilization and payment history add up to a combined 65% of your credit score. You don’t want to negatively affect any of the factors, and especially not these two.

Small Indulgences

Sometimes you need a little something to make your day special. It could be a fancy latte, or an afternoon cupcake to fight the 3 pm slump. All those small purchases add up. At the end of the month, you’re looking at your credit card bill and wondering why it’s so much. One of the problems is that most people suffer from the “left-digit effect” with prices. It means that only the first digit of a price registers in our brains. We see $9.99 closer to $9.00 than $10.00. We don’t include the numbers on the right of the decimal point, and this throws off our calculations.

Instead of swiping to pay for small charges, use cash instead. Cash is more accessible when controlling your spending and keeping to a budget. If you run out of money, you can’t purchase anything. More importantly, your credit card balance remains more manageable.

Cash Advances

This is when you borrow money from your credit card account, usually as an ATM withdrawal. Regular credit card purchases incur interest after the billing due date. A cash advance generates interest immediately, and generally at a higher rate than your purchase interest rate. There is also a cash advance fee of the greater of $10 or 5% of the advance included. Our advice: look for a card with a low interest rate for cash advances. More importantly, don’t take a cash advance.

Medical Bills

Medical bills are expensive. Putting them on your credit card makes it costlier by adding additional interest and fees on unpaid balances. Before you consider doing this, try exhausting every other available option. Contact the medical billing office and try to have the costs lowered. If that doesn’t work, consider asking them for a payment plan. You may be able to negotiate a 0% interest, fee free payment plan with the hospital. This option will cost you a lot less than placing the bill on a credit card.

College Tuition

Don’t put your college tuition on your credit card unless you have a reliable paycheck and can manage the bill. College tuition is another significant expense that many customers are unable to pay off before the billing due date. Unlike student loans that defer interest until after graduation, credit cards interest generates the day after the monthly due date. Schools add a 2-3% processing fee for credit card payments, which increases the bill by hundreds of dollars. Using a credit card to pay college tuition makes it even more costly.

Instead, you should exploit every financial opportunity you have. Ask the school’s office of financial assistance and see if you qualify for scholarships, grants, work-study programs or low-interest loans. Look to other sources to find non-traditional scholarships for which you may be eligible. Investigate your workplace’s tuition reimbursement program, and see if you, your school, and your degree of study are eligible.

Taxes

There is no legal reason why you can’t pay your taxes using a credit card. You shouldn’t pay your taxes with a credit card because of the convenience fee charged by the payment processing company. Many companies charge $3.00 or less to use your debit card to pay federal income taxes. With credit cards, you’ll still pay the flat rate, plus an additional fee (about 2%) of your tax payment. Property taxes are worse and can cost as much as 3% of your bill.

Business Startup Expenses

You have a great startup idea, but you need capital. With the accessibility of small business credit cards, you may think it’s a good idea to charge your startup expenses. Sounds good… except that most businesses don’t become profitable for several years. During that time, if you can’t pay off your monthly balances, you’re still liable for the debt plus high interest. Should the startup fold, you owe a lot of money you may not be able to pay back.

If you want a better solution, consider a small business loan or grant. The interest rates on loans are usually lower than on credit cards. Small business grants can have favorable financial terms. You can also try crowdfunding to raise your startup capital from friends, family, and other supporters.

Stock and Other Investments

These are financial vehicles that involve inherent risk. There is no guarantee that the stock value will increase from the initial investment. Paying money and interest to earn less principle than you started with potentially is a terrible strategy.

Down Payments of Any Kind for Big Ticket Items You Can’t Afford

There is a general rule of thumb when deciding if to buy something on credit. If you can’t pay it off by the billing due date, don’t charge it to a credit card. You may think it’s smart to use the credit card’s high credit limit for the charge. Instead, you now must pay off the card before interest is incurred.

If you’re tempted to use a 0% APR offer, you should do some math first. Calculate monthly payments by dividing the cost of the item by the number of months the 0% offer is active. (If you want to ensure you don’t miss the offer expiry date, reduce the number of months by one.) If you can’t afford the monthly payment, the item is too expensive. Maybe it’s a good thing anyway. Opening that new account would have temporarily dropped your credit score.

What You Shouldn't Put on a Card

Follow Our Guidelines

Here are a few guidelines to help you decide whether you should put an expense on your credit card. You don’t want to add expenses to your credit that make it difficult to pay off. Any payment that adds a percentage fee costs too much money, especially when the expense costs thousands. Beware of the little costs, because they add up quickly. Don’t put high payments on your card to chase rewards. If you can’t afford to pay your credit card purchases balance, the rewards lose value. Use these hints, and you’ll be better at identifying the things you should never put on a credit card.

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