Do you ever look at your paycheck or your bank account and wonder, where did it all go? Or perhaps you’ve examined the pages of your credit card statement, and just thought about what you bought that you shouldn’t have?
If you look hard enough, you’ll certainly come up with something that you regret, as there is nothing more wasteful than making an unnecessary purchase. And other times, there can be outrageous costs associated with using your credit card rather than another form of payment, that can make you feel like an idiot.
Check out these 10 kinds of credit card purchases, and why you shouldn’t use your credit card to pay for them:
1. College tuition. Most colleges and universities will accept a credit card to pay for tuition, but you shouldn’t do it. First, many will impose a sizable surcharge on credit card transactions, sometimes as much as 3%. But in addition, using a credit card is a terrible way to finance your education, or that of your child. Instead of paying high interest rates, talk to your school’s office of financial aid to see what loans, scholarships, grants, and payment plans are offered. Certainly, it’s a bit more work than just charging it, but you can save a lot of money.
2. A wedding. No one ever had a bad wedding because they spent too little, but plenty of people have bad marriages related to having too much debt. It can be really easy to get caught up in the excitement of a wedding, but the last thing you want to do is just charge it all and worry about the bill later. If you can earn rewards and avoid interest charges by paying the entire bill in full, that’s one thing. But if using a credit card means that you will be paying for your wedding, and interest charges for months or even years, then you should pay cash and scale it back to meet your budget.
3. Your taxes. When you pay your taxes with your credit card, you will incur “convenience fees” of about 2%. There are rare cases where this might be worth paying these fees to earn some especially high rate of credit card rewards, but most of the people who use a credit card are trying to finance their tax bills. But what they forget is that the IRS offers payment plans with interest rates that are far below what you can find from any credit card. Before you pull out your plastic to pay Uncle Sam, talk to your accountant or tax preparer about other options.
4. Buy a car. There are car dealers that accept credit cards, but this can be a horrible way to finance a vehicle. Credit cards are unsecured debt, and have higher interest rates than other loans that are secured by an asset, like a car. Shop around for a good rate on a car loan, and you’ll always do better than the standard interest rate on your credit card.
5. Get a cash advance. The last thing you should ever do with your credit card is insert it into an ATM machine. Most credit cards will impose a hefty cash advance fee, as well as a much higher interest rate. And even then, you can’t avoid interest by paying your balance full. Always use an ATM card instead. In fact, you shouldn’t even bother to select a PIN for your credit card.
6. Purchases overseas (if your card has a foreign transaction fee). Most credit cards still have an outrageous 3% foreign transaction fee, and many credit card users don’t even know about it. Thankfully, there are now plenty of credit cards that no longer impose this useless fee. Before you take your next foreign trip, be sure to check if your credit card has this fee. If it does, find one that doesn’t, or simply pay with cash when you are traveling outside of the United States.
7. Anything you bought just to earn credit card rewards. Earning valuable points, miles, or cash back from your purchases can be a rush. But too many reward card users get caught up in the moment and charge unnecessary purchases, just to earn additional rewards. This is crazy as even the best cards will only earn rewards worth a small fraction of what you pay. The other 90-something percent is just a waste of money.
8. Mortgage payments. There are companies out there that will accept credit cards and then transfer the money to your bank to make your mortgage payment. Aside from the high fees you will pay for this service, it’s a terrible idea to make a loan payment using another loan, your credit card. Doing this could be your first step into a debt spiral that can lead to bankruptcy.
9. Rent. Like paying for your mortgage with a credit card, it’s crazy to pay for your rent this way. The companies that offer to let you do this will impose very large surcharges for their service, which will cost you plenty more than writing a check. And like paying for your mortgage with a credit card, you can get into big trouble with debt if you have to finance your basic living expenses at high credit card interest rates.
10. Loaning money to other people. If there’s one thing you can do to break every possible rule of personal finance, it would be to use your credit card to buy something for someone else as a loan. If you use it for a cash advance, then it will cost you dearly in fees and interest charges (see #5). And if you use your credit card to make a purchase for someone else, you risk having to pay interest on your loan to another person, which makes no sense whatsoever. It’s a very questionable idea to loan money to anyone, but if you have to use your credit card to do so, then don’t even consider it.
What’s the worst thing you’ve ever put on a credit card? It’s alright to share. You’re among friends!