Credit cards have become a ubiquitous part of our financial lives, offering convenience, security, and rewards for various transactions. However, not all purchases are well-suited for credit card payments, and it’s crucial to understand which expenses you should avoid putting on your credit card. In this article, we’ll discuss what you shouldn’t buy with a credit card to help you make informed financial decisions and avoid potential pitfalls.
High-Interest Debt Repayment
Using a credit card to pay off high-interest debts from other credit cards or loans is generally not advisable. While it may provide temporary relief, it often leads to a cycle of debt accumulation due to the compounding interest rates. Instead, explore alternative methods for consolidating or refinancing high-interest debts, such as personal loans or balance transfer credit cards with low or 0% introductory APR offers.
Mortgage Payments
Making your monthly mortgage payment with a credit card is typically discouraged. Mortgage lenders usually don’t accept credit card payments due to the high processing fees associated with credit card transactions. Using a credit card for this purpose may result in additional fees from third-party services and doesn’t provide any tangible benefits.
Student Loan Payments
Similar to mortgage payments, student loan servicers often do not accept credit card payments directly. Attempting to pay student loans with a credit card might incur additional fees and interest charges, negating any potential rewards or benefits. It’s advisable to explore alternative methods of managing student loan payments, such as income-driven repayment plans or loan consolidation.
Cash Advances
Cash advances from credit cards are costly and should be avoided whenever possible. When you take a cash advance, you typically incur higher interest rates and immediate fees. Furthermore, interest begins accruing from the day of the advance, making it an expensive way to obtain cash. If you need cash, consider alternatives like a personal loan or borrowing from your savings account.
Investments
Using a credit card to fund investments, such as stocks or cryptocurrencies, can be risky and costly. Investment returns are not guaranteed, and the interest charges on your credit card can quickly erode any potential gains. It’s generally more prudent to use funds you can afford to invest rather than relying on borrowed money.
Annual Fees for Other Credit Cards
Paying the annual fees for other credit cards with your credit card can result in unnecessary interest charges. If you decide to keep a credit card with an annual fee, it’s better to pay the fee directly from your bank account rather than adding it to your credit card balance. Consider whether the benefits and rewards of the card justify the annual fee before deciding to keep or cancel it.
Small, Everyday Purchases That Lead to Impulse Buying
While credit cards are convenient for everyday expenses, using them for small, routine purchases can lead to impulse buying and overspending. Frequent small charges can add up quickly and make it challenging to track your spending. To avoid this, consider using cash or a debit card for everyday purchases and reserve your credit card for larger expenses or those that offer rewards.
Items You Can’t Afford
One of the most important principles of responsible credit card usage is only charging items that you can afford to pay off in full when the statement arrives. Purchasing items you can’t afford and carrying a balance from month to month can result in high-interest charges and long-term debt. It’s essential to budget and plan your purchases carefully to avoid accumulating credit card debt.
Unverified or Suspicious Online Transactions
Online shopping is convenient, but it’s essential to exercise caution and ensure the legitimacy of online merchants before making a purchase with your credit card. Avoid using your credit card for transactions on suspicious or unverified websites. Always look for secure payment methods and reputable online retailers to protect your financial information.
Automated Recurring Payments for Unused Services
Be mindful of recurring payments for services or subscriptions that you no longer use or need. These charges can accumulate over time, resulting in wasted money. Review your monthly statements regularly to identify and cancel any subscriptions or services you no longer require.
While credit cards offer numerous advantages, it’s essential to use them responsibly and avoid certain types of transactions that can lead to financial challenges or unnecessary expenses. By steering clear of high-interest debt repayment, mortgage payments, student loan payments, cash advances, and investments funded with credit cards, you can protect your financial well-being and make more informed financial decisions.
Additionally, exercise caution when using your credit card for small, everyday purchases that may lead to impulse buying, and be vigilant about verifying online transactions. Only charge items you can afford to pay off in full to avoid accumulating credit card debt and incurring interest charges.
By understanding what you shouldn’t buy with a credit card and practicing responsible credit card usage, you can harness the benefits of credit cards while minimizing the risks and pitfalls associated with them.
