By Kristy Welsh
WWR Article Summary (tl;dr) While it may be very tempting to whip out that credit card to pay for your latest purchase, you may want to think twice about what you are actually purchasing….some things just aren’t worth the swipe.
Even though building credit and racking up credit card rewards can be great for your finances in general, there are some things you should never put on your credit card because you can incur big fees and higher interest rates. Avoid putting the following expenses on credit cards so that you don’t end up making it harder for yourself to get out of debt.
If you’ve ever wondered, “Can I pay my mortgage with a credit card?” the answer is maybe, but that doesn’t make it a good idea. If you’re low on cash one month, it might be tempting to pay your mortgage payment with a credit card that has a high credit limit. But there are problems with this thinking.
For one, some mortgage companies won’t let you make direct payments with a credit card. Although some third-party companies will help you use your credit card to pay your mortgage, they often charge fees for this convenience, which will just add to the amount you’re paying in bills each month.
Should you be able to circumvent your mortgage servicer and find a way to pay your mortgage with a credit card, it’s still a bad idea if you don’t plan on paying off your credit card balance in full each month: You’re already being charged interest on your mortgage, so paying more interest on your credit card balance is both expensive and avoidable.
Lastly, charging a large amount to your credit card will lower the amount of credit available to you, which could lower your credit score. This could also happen if you choose to pay your property taxes with credit cards.
Sure, it can be convenient to whip out your credit card whenever you buy a cup of coffee or a sandwich at the deli. And sometimes, depending on the cash-back credit card or rewards credit card you use, you’re even rewarded for purchases with free cash or airline miles.
But if you swipe your credit card for every small purchase, your credit card balance could grow out of control. And the higher your balance, the harder it will be to pay off or even afford the minimum payment. At the end of the month, you’ll be left wondering if those 20 lattes were really worth it. Plus, some store owners will charge a fee if you use your credit card to purchase items under a certain amount of money, typically less than $5.
Instead of using your credit card to pay for small, discretionary items, consider using cash. Not only will it save you from running up your balance, but it’ll help you stick to a budget. By only using cash for small purchases, you’ll likely spend less.
A cash advance is a withdrawal or a short-term loan in which you’re borrowing against your credit card account. If possible, avoid taking a credit card cash advance, or else you might be subject to high fees and interest rates. Your interest rate and fees will vary depending on your bank and credit card issuer, but in general, the interest rate on a cash advance is higher than a purchase interest rate.
For example, you might have a credit card that charges a purchase interest rate of 11 percent or 12 percent. However, the interest rate for cash advances might be 2 or 3 percentage points higher. And, your fees might equal $10 or a small percentage of each transaction, whichever is greater. This is why many personal finance experts highly discourage getting a cash advance from your credit card.
Of course, some situations call for a cash advance, but these should be for emergencies only. And always look for a credit card that offers low interest and fees for cash advances.
Some strong arguments exist for putting household bills, such as utilities, on a credit card. Your department of water and power, for example, might let you pay your bills online with a credit card without being charged a fee for the service. So it might be tempting to link your credit card to the account to get rewards. And if your servicer lets you use automatic payments to pay your bills with a credit card, that’s one less bill you don’t have to remember to pay on time.
Still, relying on credit cards to pay too many of your household bills could get you in financial trouble, especially if you have a bad habit of not checking your credit card balance, which could lead to a missed credit card payment, interest charges and late fees.
Consider linking your debit card instead. But again, make sure you regularly watch your checking account. Otherwise, your balance might fall into the negatives if you don’t have enough money in your account to cover your bills, and you might get stuck having to ask your bank to waive overdraft fees.
When you don’t have enough money to pay for medical bills, one of the worst things that you can do is put them on your credit card. Medical care is expensive, and paying for it with a credit card that charges high interest on top of this is could be a bad idea.
If you have large medical bills that you can’t pay immediately, don’t automatically pull out your credit card. Instead, contact the hospital’s financial office and see if you can set up a payment plan or negotiate medical bills. Chances are, you will be paying much less in interest to the hospital than your credit card issuer will charge you.