As we are moving farther and farther down the road towards a cashless society, credit cards have become a familiar feature of the lifestyle in the world. They can be used to pay for nearly everything, everywhere and have a lot of benefits like convenience, consumer benefits, and rewards programs.
While it is tempting to swipe your credit card for just about everything, you must think twice before doing so. These seemingly innocent pieces of plastic can get you into a world of financial trouble if you do not make wise choices as to how and when to use them. There are certain items on your credit card that can lead to big fees and higher interest rates and cancel out the benefits.
Here are the 6 expenses you should avoid putting on your credit cards so that you pay fewer card credit fees, save on interest and make it easier for you to build savings and eliminate your debt.
- Down Payments Of Any Kind: You should not rely on using your credit card when you are getting ready to finance a big ticket item like a house or a car. It can be a point of issue for a house because you typically cannot use a credit card to pay down payment unless you get cash advance to pay for it. Which is not a very good idea. After all, when you sign on a payment plan it will include interest payments, so the last thing you would want to do is pay additional interest associated with your down payment. If you want to use your credit card for a down payment just because you can take advantage of your credit card’s high credit limit, then that might be a sign that you cannot really afford the down payment. Adding the credit card’s high-interest rate to the sales price of your car or home makes a challenging financial crisis even worse.
Taxes : It could be tempting to pay your taxes via Visa or MaterCard, especially if you are slammed with an unexpected tax bill this April. But, not so fast. The Internal Revenue Service will charge you a merchant processing fee of around 2 percent to do so, which is more than what you would stand to gain in reward points. And, if you use third-party filing software then you will have to pay even more.So why should you pay interest charges for taxes owed, when you can opt for a short-term personal loan or ask the IRS for a payment plan. The government interest rate according to Experian is only around 0.5%. You could also budget your tax-bill throughout the year, and send a check to the IRS.
You should also not pay property-tax with a credit card as the convenience fees on tax payments is 2 to 3 percent of the tax amount.
- Small Indulgences: It is convenient to use your credit card on small indulgences likea chocolate bar, coffee, or an ice-cream coneat the deli. These small purchases may not seem much, but they really add up on a credit card statement. So if you cannot resist these temptations, at least resist the urge of using plastic and give yourself a cash allowance each week. You will be much happier at the end of the month as it will not only help you to stick to a budget, but you will spend more mindfully if you have to reach into your purse each time you buy something.
Household Bills : You can definitely pay your household bills such as utilities on a credit card, but should you? Your water department and power company may let you pay bills on with your credit card for free and entice you to link your credit card to their accounts to get reward points. Also, if your server lets you use automatic bill payments with a credit card, then it is one less bill you will have to remember to pay. However, it is easy to get into financial trouble if you neglect to keep track of your balance. Missing payments or going over your credit limit can saddle you with late fees and extra interest charges. So the risks can often outweigh the benefits.
You can consider linking your debit card instead of a credit card, but you pay attention to any other bills you are paying for and keep a close eye on your checking account. Overdrawing your account may lead to hefty overdraft fees.
Medical Bills : Health costs are rising day by day and show no signs of slowing down. However, the worst thing you can do is put them on your credit card. Paying for expensive medical care with a credit card that charges high-interest rates will only add to the costs. There are other options if you cannot really afford the treatment you need. You can contact the hospital’s finance office and ask if you can negotiate the charges or set up a payment plan. Chances are that you will pay much less interest to the hospital than you will pay your credit card issuer.
Also nowadays, medical debt is factored into your credit score differently from consumer debt which is anything you put on a credit card. So, now an unpaid medical bill will not impact your credit score as severely as it would have done in the past. You will of course not want to have any debt in your life but having a hospital or medical bill will be better for your long-term financial status than credit card bill.
Credit Card Cash Advances : It must be tempting to take a loan against your credit card when you are short of cash. But, have you ever noticed the fees and interest rates on cash advances? They are usually in the range of 23% or more. They also do not have the grace period that purchases come with and the interest will start accruing on your loan the moment you withdraw the cash.
Of course, there are some situations that need a cash advance, but these should be reserved for true emergencies only. You should always look for credit cards that have low rates on cash advances.
Credit Card debt is backbreaking enough, so do not make things more difficult for yourself by using your credit card unnecessarily. If you use your card responsiblyyou can pave the way to other smart money moves such as proper planning and budgeting for long-time financial goals. If you need any help with your credit card debt you can contact Ooraa.org today for a free consultation.