Credit cards are helpful tools for improving your credit score. Paying them off monthly and increasing your credit score will give you access to easier loan terms. However, there are some things you shouldn’t pay for with your credit card. Here are 18 things you should never put on a credit card.
Big-Ticket Items You Can’t Afford
It’s important to resist the temptation to use your credit card to overspend on high-value items you’ve had your eye on for a while. However, the long-term interest payments will significantly increase the initial cost and could leave you in a debt cycle.
Paying Off Other Credit Cards
There is a way to pay off a credit card balance with another credit card: a balance transfer. However, as Forbes notes, it has downsides, including a balance transfer fee, an expensive APR, and a lower credit score if you apply for multiple new credit lines.
Down Payments on Cars
When buying from a dealer, using a credit card for a downpayment on your new car can increase your total financing costs. Dealers may also limit the amount you can put on a credit card, which may negatively impact your credit utilization ratio.
Vacations You Can’t Pay Off Immediately
Using your credit card for a vacation risks long-term debt for short-term enjoyment. The high interest rates of many credit cards will increase the overall cost of the vacation, and it may also be tempting to overspend, increasing your debt.
Wedding Expenses
Weddings are expensive and often go over budget as unexpected costs rack up. Paying for weddings with credit cards with high interest rates will increase the total costs of the event, and it’s also emotionally risky to start married life with high levels of debt.
Gambling and Casino Betting
It’s never a good idea to use a credit card when gambling or betting at a casino. Playing Russian roulette with your finances can leave you with a large amount of high-interest debt that could turn into bankruptcy.
Mortgage Payments
Mortgage loan servicers won’t allow you to pay with your credit card directly. However, as Experian explains, there are ways around this, but “the fees and high interest rates may make using a credit card a poor option.”
Cash Advances
Paying for cash advances with a credit card involves a transaction fee, and the APR is usually higher than it would be for other credit card purchases. There’s also no grace period, which leads to the immediate accrual of high-interest debt.
Purchasing Stocks or Other Investments
Purchasing stocks and other investments with your credit card is usually a bad idea. High interest charges will amplify the significant risk of loss associated with investing. Many brokerage platforms also don’t accept credit card transactions.
Medical Bills
It may be tempting to pay an unexpected medical bill with a credit card, but it’s generally a bad idea and may end up costing you more. Priya Malani of Stash Wealth told CNBC, “These charges don’t belong on a credit card, even if the doctor or hospital suggests you use one.”
Cryptocurrency Purchases
American Express, Chase, Capital One, and other credit card companies treat cryptocurrency purchases like cash advances, which makes them expensive. The volatility of cryptocurrencies can also increase the risk of losing money.
Luxury Goods
It’s not worth paying for luxury goods with a credit card. Although they may be appealing, impulse purchases with a credit card usually lead to regret and significant financial strain. Luxury goods can also quickly depreciate.
Taxes Owed to the IRS
It is possible to pay taxes you owe to the IRS with your credit card, but it has serious drawbacks. CNBC warns that it comes with a processing fee, unlike a check or automatic bank transfer, neither of which goes to the IRS. It also notes that it “can also hurt your credit score by spiking your credit utilization rate.”
Subscription Services You Forget About
It’s easy to forget about a few subscription services, especially if they are charged annually. However, paying for them with your debit account is better to avoid unnecessary debt accumulation if you want to stay subscribed. Unsubscribe from any services you no longer use to keep costs down.
Student Loans
Paying for student loans with your credit score directly is impossible, but there are workarounds. U.S. News explains that “you may be able to use a credit card for private loans,” but using them will result in “fees that could erase rewards value.” It could also lead to credit card debt, “which is far less forgiving than federal student loan debt.”
Overseas Travel Without a Budget
Traveling overseas without a budget often leads to spiraling costs. Holidays are expensive, so planning and creating a budget is important to avoid paying with your credit card. Foreign transaction fees will also ramp up credit card charges.
Emergency Fund Contributions
Using your credit card for emergency savings contradicts the purpose of financial stability and encourages a cycle of dependency on credit. Long-term debt accumulation for short-term security isn’t worth it.
Legal Bets and Fantasy Sports
Paying for bets and fantasy sports comes with your credit card, but like with gambling and casino betting, there are similar risks. The potential for uncontrollable spending leading to spiraling debt is too risky, so avoid credit cards when paying for bets.
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