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When utilized properly, credit cards can be among the most sensible and secure methods of making payments for your purchases. Paying with a credit card trumps paying with a debit card or cash for many reasons. Credit cards offer stronger fraud protections (and sometimes purchase protections as well). Unlike cash, you can call your credit card issuer to request a replacement if you misplace your card. Plus, with responsible usage credit cards can help you build a credit score and earn valuable rewards.
However, even with all the advantages that a well-managed credit card can provide, there are some situations in which it’s probably preferable to use an alternative form of payment. Here are five instances when you should avoid using a credit card and the possible outcomes.
Yo, credit card fam! We all know the power of plastic – it can build your credit score, snag you sweet rewards and even help you navigate an unexpected financial emergency. But hold up, there are times when whipping out your credit card is like inviting trouble.
The lowdown on when to give up using plastic and stick to cash or debit is as follows:
1 When You Can’t Pay It Off:
This one’s a no-brainer. If you’re already struggling with credit card debt, adding more to the pile is like pouring gasoline on a fire. Remember, those sweet rewards points and cashback bonuses are quickly overshadowed by sky-high interest rates that can leave you drowning in debt.
2. When You’re Clueless About Your Available Credit:
Ever swiped your card without a clue about your remaining balance? Big mistake! Not only can you rack up over-the-limit fees, but utilizing your full credit limit can tank your credit score. Aim to stay below 30% of your available credit for a healthy score.
3 When You’re Blinded by Rewards:
Although the cashback and reward points are alluring, resist the urge to let them influence your decision. Always check for hidden fees associated with using your card for bill payments. Frequently, the benefits are outweighed by the processing costs, so using cash or debit is preferable.
4. When You’re Feeling Pressured:
Having to deal with a large bill or unforeseen expenses? Don’t allow fear steer you in the direction of store or medical credit cards with their alluring 200% APR offers. Read the fine print for hidden fees and deferred interest charges. Explore alternative payment plans and compare options before committing.
5. When Emotions Rule Your Spending:
Feeling stressed or down? Resist the urge to seek solace in retail therapy. Using your credit card when you’re feeling particularly emotional can result in regret and a large credit card bill. Take a breather, go for a walk, or call a friend instead.
6. When Fraud Lurks Around the Corner:
Credit card fraud thrives on shady websites, dubious emails, and public Wi-Fi. Share your card information with caution over the phone or online, especially if it’s in public. Prior to clicking on any dubious links, choose secure connections and confirm the source.
7. When Applying for a Mortgage:
Applying for a mortgage? Put your credit card away. The increased debt on your credit report can lower your score and impact your chances of securing a favorable loan.
8. When You Crave Quick Cash:
Cash advances might seem like a quick fix, but they come with a hefty price tag. High interest rates and additional fees can make your financial situation worse. Opt for alternative methods or consider a 0% APR balance transfer card to manage your debt more effectively.
Still unsure?
Plan ahead, consider the financial impact, and communicate with your partner before making major purchases. Utilize virtual tools offered by your credit card issuer to track your spending and stay within your budget. Remember, responsible credit card usage is key to unlocking its true potential.
So embrace the power of responsible credit card usage and throw away the plastic when it doesn’t make sense financially!
You’re Applying for a Loan
A lender may check your credit report when you apply for financing, particularly a larger loan like a mortgage, in order to determine how much debt you owe other creditors. Even if it’s just momentary, having a large credit card balance can raise your debt-to-income (DTI) ratio and lower the amount of money you can borrow for a new loan.
Your credit utilization ratio is another problem that arises when you apply for a loan with a large credit card balance. Recall that using a larger percentage of your credit card limit will typically have a negative effect on your credit score.
It might be advisable to temporarily suspend using your credit cards if you know you’ll be applying for a new loan soon. By lowering the amount of credit card debt that shows up on your credit reports, you may be able to lower your debt-to-income ratio and credit utilization ratio.
When it comes to making purchases and even paying some regular monthly bills, credit cards are frequently a better option—especially if you can avoid paying interest and accrue worthwhile rewards in the process. However, it’s crucial to exercise caution before using your credit card to make a purchase. If you use a credit card for payment at the incorrect time, you may incur high interest costs or, worse yet, negatively impact your credit score going forward.
You Can’t Meet Your Minimum Payments
If you’re finding it difficult to make the minimum payments on your credit cards, that’s another indication that it might be best to give them a vacation. The smallest amount you can pay a credit card issuer to prevent your account from going past due is known as the minimum payment. Making just the minimum payment, however, won’t help you pay off your debt and may cause major issues with your finances and credit score.
Make a plan as soon as possible to deal with the issue if you are having trouble paying more than the minimum amount owed on your credit cards. Depending on your circumstances, you may want to think about using a balance transfer credit card or a personal loan to combine your debt. Additionally, it might be worthwhile to discuss your options with a reputable credit counselor if you feel like you’re in over your head.
Why Not Use Credit Cards?
What happens if you don’t use a credit card?
If you don’t use a particular credit card, you won’t see an impact on your credit score as long as the card stays open. But the consequences to inactive credit card accounts could have an unwanted effect if the bank decides to close your card.
Can you avoid getting a credit card?
It’s completely acceptable to avoid getting a credit card. Consumers can pay entirely with cash, check or debit card and still build a positive credit history through other types of loans. According to a May 2021 Federal Reserve report on the economic well-being of U.S. households, 83% of U.S. consu
What happens if I stop using my credit card?
If you stop using your credit card for new purchases, your card issuer can close or curb your credit line and impact your credit score. Your credit card may be closed or restricted for inactivity, both of which can hurt your credit score.
Can a credit card issuer close your account without notice?
They have the right to do both without notice, but you should still receive some communication detailing the updates to your account. You might shrug off your credit card issuer closing an account you weren’t using anyway, but the move can be significant for your finances and shouldn’t be ignored.