Many credit cards offer a slew of incentives to consumers to use them — cash back and other rewards — and many protect the cardholder with zero liability in case of fraud. But credit cards are not always your best form of payment, and it sometimes may be in your better interest to keep them tucked away.
Here are 10 purchases you should probably avoid making with your magic plastic:
1. Household bills
There can be a major problem with this approach for many people: If you are already cutting it close for the month, you may be tempted to take care of the utility, cellphone or cable bill, just to name a few, with the card. But if you’re not paying off your full balance each month, the interest you’ll be charged will make those monthly bills even more expensive.
If you are indeed responsible with your credit cards and are attempting to rack up rewards, this should be done at your discretion, but only if you have cash on hand to fully cover the transactions each month.
Car dealers often don’t allow this, or may limit the amount of the purchase price you can put on your credit card. The 1 to 3 percent fee from the card company to process the transaction will cut into their profit.
You could exercise the cash advance option. But you’d pay a fee and a higher interest rate and also get no grace period on the interest. It begins to accumulate right away.
Go to a credit union or a bank to get financing approved at a reasonable interest rate before you shop for a car.
3. Student loans
If you can’t afford to pay your federal student loans, you have options like an income-based repayment plan, deferment, forbearance and possibly loan forgiveness. Take a look at “Finding Help With Your Student Loans” to learn more.
Paying your student loan debt with a credit card will only increase the amount of interest you’re paying on the debt. Even if you have a 0% introductory credit card offer, it will expire in time.
And while the federal government will accept a credit card payment for loans in default, many student loan servicers won’t allow this form of payment.
Shifting student debt to credit card debt rarely makes sense financially, and if you go into it thinking you may eventually discharge the debt in bankruptcy, you’re at best betting on yourself to fail, and at worst, committing fraud.
4. Retail therapy
Think a new purchase will cheer you up? Cash is king in this case so your credit card balance won’t spiral out of control. Plus, keep in mind that the positive feeling you get from buying something is usually short-lived.
5. Medical bills
Last year the Consumer Financial Protection Bureau ordered one of the providers of medical credit cards to refund $34 million to customers after it accused the company of deceptive enrollment practices. If you use a medical credit card available through your health care provider’s office to pay your bills, be careful to read the fine print about your obligations.
Better yet, talk to the provider about working out a payment plan.
Also consider steps you can take to reduce your health care costs. See “10 Ways to Fight High Medical Bills.”
6. A night on the town
Handing your credit card to an unscrupulous waitperson equipped with a skimming device isn’t the only thing you need to worry about. If you’re out on the town throwing back drinks, it’s very easy to run up a tab you really can’t afford.
In these scenarios, it’s best to pay with cash and save yourself remorse.
7. Big-ticket items that you can’t immediately afford to pay off
I am well aware of the purchase protections that accompany many credit cards, and credit cards should be used for big-ticket purchases. But buying something on credit when you can’t afford to pay it off right away isn’t smart for a number of reasons, a high interest rate and a risk of a late payment or default are just a few.
8. Credit card payments
You can’t charge your monthly credit card payment on another credit card. But perhaps you’ve been tempted to use a cash advance from a credit card to bolster your checking account so that you can pay your other bills. We’ve already explained how cash advances work. Your credit card is not an ATM and should not be used as one.
There are real benefits, however, to transferring high-interest credit card debt to a new card with a generous 0% balance transfer offer. Just be aware of the balance transfer fee and the length of the offer, and decide if it makes financial sense.
9. “Sale” items
Convinced that you may miss out on savings if you don’t purchase a specific item on sale right away? That’s one of the warning signs of an impulse buy. Wait a day and think about whether you really need it; nine times out of 10, the answer will be no.
You aren’t really saving money if you’re spending money for something you don’t need, and buying with a credit card makes the transaction even easier to digest.
10. Unsecured online purchases
Does the Web address have an “https” at the beginning? If not, that’s your cue to take your online shopping elsewhere. In fact, do your homework before you purchase anything online to make sure a company is reputable and not the source of many consumer complaints.
Your credit card should be perceived as a last-resort safety net. It’s up to you to be a cautious and knowledgeable consumer.
What purchases do you refrain from making with your credit card? Let us know in the comments below or on our Facebook page.