October 25, 2018
You have several credit cards and a couple of killer rewards programs. Why not put them to good use and charge every purchase that you can?
It's smart to get the most out of your credit cards, but do so within a budget and with one thought in mind – "Is a credit card the best way to pay for this item?" Consider these seven items that are unwise to pay with your credit card.
1. College Tuition – If you put your college tuition on credit, you'll get an extra lesson on interest rates – and a painful one at that. Undergraduate federal student loans taken out during the 2018-2019 academic year carry 5.05% interest. The highest rates of any student loans are 7.6% for PLUS loans that target parents and graduate students. Meanwhile, the average credit card annual percentage rate (APR) is almost 17%.
Still think you should charge your tuition? Take a math course or two and rethink your strategy.
2. Taxes – It's okay to pay your taxes via credit card, and the IRS website offers links and instructions to show you how. However, you'll pay for the privilege. Fees vary from 1.87% to 1.99% of the taxes due – painful if you owe a lot – with minimum fees ranging from $2.50 to $2.69.
3. Mortgage Payments – This isn't an option for most people, and it shouldn't be an option for anybody. Some third parties will facilitate your mortgage payments on credit, but you'll pay extra for the privilege. If you're at a point where you have to consider putting mortgage payments on credit, you're probably living beyond your means.
4. Big-Ticket Items That Stretch Your Budget – If you can't afford to pay an item off at the end of the month, you'll pay interest charges on the balance. Does the seller offer an installment plan for a lower overall cost? More importantly, can you really afford to buy that item? Automobiles fall in the same category. You can likely get financing at rates well below your credit card APR.
5. Large Medical Bills – Again, it's a matter of interest rates. Medical costs can be astronomical, and interest charges are likely to pile up. Most hospitals will be happy to set up a payment plan that will have a better interest rate than your credit card. Smaller medical charges such as co-pays or simple procedures may be all right to place on plastic, as long as you can pay it off in full at the end of the month.
6. Investment Purchases – As with mortgages, it's difficult to pay for investments with credit cards – and paying for investments with credit just multiplies the risk. In fact, many credit cards ban purchasing cryptocurrencies.
7. Business Startup Expenses – Leveraging your credit in the risky first months of a business is dangerous. You should be able to secure a business loan at a better interest rate – and if not, review your business plan and check your credit history. There's a good reason that lenders aren't willing to loan you money. You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips.
In general, credit card debt is the highest interest rate debt that most people have. Look for a credit alternative for any charges that you can't pay off at the end of the month. You may choose to use a credit card and carry a balance for a short time based on rewards programs – but make sure you consider the costs as well as the benefits. Blindly throwing your credit card at any purchase is a great way to end up in serious debt, and you could end up in a debt spiral leading to bankruptcy.
If you want more credit, check out our list of credit card offers.
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