Some common expenses should not be charged to your credit card due to additional fees associated with card processing. Additionally, you might be responsible for additional fees and interest if your card issuer views the transaction as a cash advance.
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Numerous advantages are possible with credit cards, such as rewards, purchase protection, and the ability to pay off your balance gradually. But occasionally, using a credit card isn’t the best choice because there are better options available or because using one will result in additional fees.
When utilized sensibly, credit cards can be an effective tool for managing your money, establishing credit, and obtaining rewards. But using them for some purchases can send you down a debt spiral and into financial difficulties.
This guide will delve into the eight expenses you should never put on a credit card, along with insightful tips and strategies to help you navigate your financial decisions.
1. Rent or Mortgage Payments
While some landlords and mortgage companies may accept credit card payments, it’s generally not a wise financial move. The convenience of using a card often comes with hefty processing fees, typically ranging from 2% to 3% of the payment amount. These fees can quickly add up, especially for larger housing expenses.
Furthermore, even if you earn rewards points on your credit card, the processing fees will likely outweigh the benefits. Additionally, using a credit card for rent or mortgage payments can increase your credit utilization ratio, potentially impacting your credit score negatively.
Alternative: Opt for traditional payment methods like checks cash or direct bank transfers to avoid unnecessary fees and maintain a healthy credit score.
2. Utilities
Certain utility companies may impose processing fees for credit card payments, much like they do for rent or mortgage payments. Even though these costs are frequently minimal, you can easily avoid them by having automatic payments made from your bank account. This way, you’ll save money and avoid the hassle of remembering due dates.
Alternative: Utilize automatic payments from your bank account to avoid processing fees and streamline your bill payments
3. Income Taxes
While the IRS allows paying taxes with a credit card, it’s crucial to be aware of the associated fees. These fees can range from 1.85% to 1.98% for credit card payments, significantly impacting your tax bill.
If you’re struggling to pay your taxes, consider exploring alternative options like a low-interest personal loan or a payment plan with the IRS. These options often have lower interest rates and can help you avoid the high fees associated with credit card payments.
Alternative: Explore alternative payment methods like personal loans or IRS payment plans to avoid high credit card processing fees.
4. Medical Bills
Medical bills can be unpredictable and financially overwhelming. While using a credit card for medical expenses may seem tempting, it can lead to significant debt accumulation if you’re unable to pay off the balance quickly.
Consider working out a payment plan with the healthcare provider or looking into financial aid programs provided by non-profit hospitals as an alternative to using credit cards. Furthermore keep in mind that unpaid medical debt usually has no impact on your credit score for a full year, giving you some breathing room to handle the debt.
Option 3: To manage medical debt, work out a payment schedule with medical providers, look into financial aid programs, or take into account low-interest personal loans.
5. Cash Withdrawals
Cash advances from credit cards come with a plethora of fees and drawbacks. These include higher interest rates than those on regular purchases and cash advance fees, which are usually a percentage of the withdrawal amount. Additionally, even if you consistently pay off your credit card debt in full, interest on cash advances begins to accrue right away.
As an alternative, use your debit card to make cash withdrawals to save money on fees and interest rates that are too high.
6. Peer-to-Peer (P2P) Payments
Popular P2P platforms like Cash App, PayPal, and Venmo allow linking your credit card to your account. However, using your credit card for P2P payments can result in fees of around 3% of the transaction amount. Additionally, card issuers may treat these transactions as cash advances, incurring additional fees and interest charges.
Alternative: Link your bank account to your P2P platform to avoid fees and interest charges associated with credit card transactions.
7. Online Bets
The legality and availability of online sports betting and gambling vary depending on your location and card issuer. However, even when permitted, using your credit card for these activities can be risky. You could potentially accumulate high-interest debt by placing bets with borrowed money. Additionally, card issuers may consider these transactions cash advances, further increasing your financial burden.
Alternative: Explore alternative payment methods for online bets to avoid potential debt and high-interest charges.
8. Tuition
Some colleges and universities accept credit cards for tuition and other educational expenses. However, the added processing fees can make this option financially disadvantageous. Instead, explore various forms of financial aid, including federal student loans and scholarships. If you or your child doesn’t qualify for federal aid, research options for regaining eligibility and securing more assistance in the future.
Alternative: Explore financial aid options like federal student loans and scholarships to avoid high processing fees associated with credit card payments for tuition.
Using a credit card for certain purchases can lead to financial pitfalls. By understanding the expenses you should never put on a credit card, you can make informed financial decisions and avoid unnecessary debt. Remember, responsible credit card usage is key to building a healthy credit score and achieving your financial goals.
Peer-to-Peer (P2P) Payments
You can link a credit card to your account on well-known P2P payment services like Cash App, PayPal, and Venmo. You can then use the app to send money to other people and businesses.
However, you may be charged around 3% of the transaction amount for each transfer. Additionally, card issuers may treat the transaction as a cash advance, in which case you will be charged the additional fees and interest listed above in addition to losing out on rewards. To avoid the fees and interest, link and use your bank account instead.
Online sports betting and gambling have grown in popularity recently. Whether you can use your credit card may depend on where you live and your card issuer. But even when it is an option, using a credit card to make a wager can be dangerous because you might be taking on high-interest debt. Card issuers also might consider these transactions cash advances.
Some colleges and universities accept credit cards for tuition, school fees and other higher education costs. But the added payment processing fees might make using a card a bad idea.
Instead, look into different forms of financial aid, including federal student loans or scholarships. Additionally, consider your options for regaining eligibility and receiving more assistance in the future if you or your child are not eligible for federal financial aid.
Rent or Mortgage Payments
It’s not always possible to pay your rent or mortgage with a credit card; typically, landlords prefer payments made with checks, cash, or Venmo. However, if your landlord takes credit cards or if you attempt to use a third-party service, carefully read the terms.
A payment processing fee, typically approximately 3% of the total payment amount, may be charged, and your landlord may pass along the additional expenses. These fees can quickly add up, especially because housing is a major expense for most households. And even if you earn rewards, youll probably wind up spending more in fees than you earn.
Some utility providers also charge processing fees if you pay your bill using a credit card. The fee is often only a few extra dollars. However, if you make one-time or recurring payments using your bank account rather than your credit card, you might be able to avoid it with ease.
For some individuals, paying income taxes can also be a significant expense, especially if they are self-employed or have a small business and have not filed their taxes on a quarterly basis. If you want to use a debit or credit card to pay your taxes, the IRS has a list of authorized payment processors. Additionally, the website lists processor fees; a chart indicating the fee based on the processor you select and the amount of your payment is included.
As of August 2023, the fees range from 1. 85% to 1. 98% for credit card payments. If you are unable to pay your taxes now, you might be better off taking out a low-rate personal loan or arranging a payment plan with the IRS rather than paying the penalty and accruing high-rate credit card debt.
However, using a credit card to make payments could benefit you if you can afford to pay off the balance in full and avoid incurring interest. For instance, a few of the greatest cash back credit cards provide 2% cash back on every purchase, which is E2%80%94 marginally more than the credit card processing fees.
Medical bills are hard to plan for and can be surprisingly expensive. Using a credit card to pay for these kinds of bills may seem like a smart idea, and there are credit cards designed especially for medical purposes. But unless your card has an intro 20% annual percentage rate (APR) offer, you could accrue a significant amount of interest while making balance payments.
Aside from promotional interest rates, a large balance could lower your credit score and raise your credit utilization ratio. Once a payment is 30 days past due, the credit card issuer has the right to report the late payment to the credit bureaus if you have trouble paying your bills on time.
It might be wiser to attempt to settle the medical bills through negotiation and then work out a payment schedule with the healthcare provider. Through charity care programs, nonprofit hospitals also provide free or reduced services to eligible patients; however, they may not inform you of these programs unless you specifically ask.
One benefit of not using your credit card for medical debt is that, in most cases, medical bills have no impact on credit scores. For a full year, even delinquent bills that are sent to collections won’t show up on your credit report; additionally, medical collections for less than $500 won’t show up on your report at all. Older medical collection accounts on your report will also be removed once you pay off the debt.
Using a convenience check, a bank teller, an ATM, or occasionally your card app, you can use your credit card to get a cash advance. It can be a quick and easy way to get extra cash to cover bills. However, cash advances should generally be a last resort.
When you get a cash advance, you may need to pay an additional cash advance fee. Additionally, cash advances frequently have higher annual percentage rates (APRs) than purchases or balance transfers. Interest also accrues on cash advances right away, even if you consistently pay off your credit card debt in full.
Why You Should Buy Everything With Credit Cards
FAQ
What should you not spend on a credit card?
Is there anything you can’t pay with a credit card?
What you should and shouldn’t buy on credit card?
Should you pay for things you can’t afford with a credit card?
Things you can’t afford to pay with cash or debit — This may seem obvious, but if you wouldn’t make the purchase with cash or debit, you shouldn’t pay for it with a credit card, either. Data from the Federal Reserve suggests that as many as 60% of credit card accounts were used to carry a balance for at least one month in 2015.
What expenses should not be charged on a credit card?
In times of crises, like this one, that differs person to person. Below, we spoke to four personal finance experts about the five types of expenses they recommend never charging on a credit card. Under normal circumstances, these are the rules of thumb. 1. Your monthly rent or mortgage payment
Can I put my purchases on a credit card?
Of course, once you have the necessary money saved up, you can put your purchase on a credit card to earn rewards. Just be sure to pay your balance in full when you pay your credit card bill. Credit cards can provide valuable rewards that can put cash back in your wallet or fund amazing trips.
Should you use a credit card to pay for things?
Instead of using your credit card to pay for small, discretionary items, consider using cash. Not only will it save you from running up your credit card balance, it will help you stick to a budget, because you’ll likely spend more mindfully if you have to dip into your wallet each time you buy something. 3. Cash Advances