Credit cards make life easier. They also make life harder. Although you could save time and even get something in return by making a purchase with a card, it’s not always the best decision. You may be enticed with points or cash back. In addition, using your card as much as possible could help you reach a big signup bonus. But some purchases, or expenses, could come back to haunt you, and it can be difficult to shake them loose. Although everyone lives under different circumstances, there are a handful of transactions that everyone should generally avoid making with a credit card. Read more about them below.
Mortgages, Auto Loans, and Student Loans
Mortgages, auto loans, and student loans are practically guaranteed to be huge sums of money, and you may have high monthly payments depending on the terms of your loan agreement. It may be tempting to use a credit card – especially if you can earn rewards – but there are a few issues. First, the companies that service these loans generally do not allow credit cards as a form of payment. You can use third-party businesses that pay on your behalf and allow your credit card to be charged, but they’ll add on a convenience fee for their services. Second, you’ll be using up your credit limit in a hurry, especially if you don’t fully pay off your card’s balance every month. And third, these loans already accrue interest, so if you’re letting balances revolve on your card, you’re accumulating interest on top of more interest. In short, you’re needlessly paying more than you have to. Unless you’re certain you won’t dig yourself into a hole by using a credit card, it’s best to steer clear of that option.
Schools may allow you to pay for tuition costs with a credit card, but, again, you’ll be making the wrong decision if your card has a high-interest rate and can’t fully pay the balance each billing period. Plus, schools will likely charge additional convenience fees. These fees are usually small percentage amounts – think 2%-3% – but depending on the tuition sum, those percentages can add up to considerable additional charges. Consider taking out a student loan instead, which will have a much lower interest rate.
Like school tuition, hospital bills are best paid with direct funds. Most medical costs are high and putting them on a card means decreasing your utilization ratio, which can hurt your credit score. If you’re not liquid enough to cover a hospital bill, contact the facility’s financial office and inquire about arranging a payment plan instead.
Whether it’s a house or a car, you should always be able to cover a down payment with cash on hand. If you’re relying on a credit card to meet the down payment amount, it just means you’re not ready to afford what you’re about to purchase. Take the time to save money instead and save yourself the regret later on.
While you’re not technically paying for a cash advance, you are withdrawing money against your credit card account, and that’s money that you’ll have to pay back. As mentioned above, cash advances bear high APRs, transaction fees, and no grace periods, so you will almost always end up paying more than what you took out.
A bail bond is likely to be processed as a cash advance if you purchase it with a credit card. Therefore, expect a cash advance fee and a higher APR than what’s in place for regular purchases. Plus, you’ll have no grace period, meaning interest immediately begins to accrue.
As you may have gathered, the primary reasons you should not pay for any of the above costs with a credit card is because you’ll run up your credit limit, you’ll risk carrying a balance that can quickly snowball, and you’ll end up paying more in the long run through finance charges and fees. If you make time to evaluate your financial situation and consider all your options before you take on a big expense, you’ll be less likely to make a rash decision that sounds feasible in the moment but will have negative consequences down the road.