Purchases you should avoid putting on your credit card - SouthPoint Financial Credit Union (2024)
Credit cards can be confusing, but learning what not to buy with one is essential to your credit. Building credit using credit cards can be great for your credit, however, certain items may lead to bigger fees and higher interest rates. Credit cards are a powerful financial tool and should be used mindfully to avoid the cycle of debt trap.
Avoid placing the following expenses on credit cards:
Mortgage or rent
Most mortgage companies or rental agencies won’t let you make your payment with credit cards. Even though some third party companies will help you for a large fee, this doesn’t make it a good idea. By the end of the month you will have compounded your mortgage interest and credit card interest making it very expensive and almost inescapable to overcome. Your mortgage or rent should always be your number one priority to pay each month, but try not to use a credit card for your payment.
Some utility companies will let you use your credit card for payments with no fees, while others charge a $1-2 service fee. Either way it makes it easy to link your credit card to your utilities each month and not worry about them. These risks often outweigh any benefit of using your credit card. Going over your credit card limit or missing payments can put you into financial difficulties and cause extra interest charges or late fees. Paying household items on credit cards such as groceries, personal care items or cleaning supplies is also not the best idea. Purchasing these items will cost you a lot more in the future with interest. Instead, link your checking account or debit card to your utility company and cut your household bills where you can.
Small indulgences or vacation
Everyone needs a little extra pick-me-up from time to time. Credit cards offer a convenient way to purchase a cup of coffee or a sandwich from your favorite sub shop. If you use your credit card for every small purchase, you’ll be surprised by how much your balance will grow. Additionally, if you finance your vacation with credit, more often than not you will return to more difficulties than before you left because of increasing financial stress. A better option is to save for your vacations leading up to it.
Down payment, cash advances or balance transfers
A good rule to abide by is to not rely on a credit card for any kind of down payment. It will add to a larger cost and may be a sign that you shouldn’t make the purchase. In addition, cash advances usually charge a higher rate than purchases.
Treatment costs can be expensive and when you don’t have enough money to pay for them, you might think it’s a good idea to put them on a credit card. Instead, shop around prior to getting treatment and find out how much your insurance will cover. Paying for any medical bill with a credit card that charges high interest rates will only add to your total cost. Most healthcare providers will be able to adjust rates and offer repayment plans with less interest charges.
Wedding
Planning a wedding is not an easy task. One of your first challenges as a couple is to budget for your big day. To avoid beginning your married life with wedding debt, open a savings account and start placing funds into it every pay day.
Taxes
When faced with a large liability like taxes, it may be tempting to charge it, but do you know that the processor will usually charge a fee of between 1.88 and 2.35 percent on top of your scheduled payment? The IRS will allow you to setup a payment plan with a more competitive interest rate.
Student Loans or tuition
College is expensive and college students are tempted to use credit cards as a convenient way to pay for college tuition while waiting for their financial aid. Instead of using credit cards, education can be funded through lower-interest student loans, scholarships, grants and full or part-time jobs.
A good rule of thumb to abide by is if you can’t pay it completely off each month, don’t put your purchase on plastic. Credit cards are important to your financial health but how you use them will determine the outcome.
They advise against using your credit card to pay for things like rent, gas, cash advances, medical bills, buying a car, and expensive events like weddings. While it can be tempting to put everything on your debit card for budgeting purposes, there are financially savvy reasons to swipe your credit card.
Making payments on time: Paying on time can help you avoid late payment fees and reduce finance charges. Paying off balances in full: Paying off your monthly balance can help avoid interest charges. Choosing a credit card with a lower APR: Choosing a credit card with a lower APR can help you reduce finance charges.
High credit card interest rates — and how quickly they can result in mounting debt balances — are a downside of credit cards. But if you pay off your balance in full and on time, you can reap benefits like rewards and a strong credit score.
Ramsey's argument here is that by using credit cards to earn rewards -- even if you pay your balance in full -- you're enabling the credit card companies to persist in operating under a business model where they charge high rates (often 17% or higher), and high fees from those who can least afford it.
Mortgages, rent and car loans typically can't be paid with a credit card. You may need to pay a convenience fee if you pay some bills, like utility bills, with a credit card. Using a credit card for your monthly bills can offer opportunities to earn rewards.
Key Takeaways. Credit cards make it all too easy to overspend. Buying on credit can also make your purchases more expensive, considering the interest you may pay on them. Getting into too much debt can not only hurt your credit score but also strain relationships with family and friends.
The bottom line. From a legal perspective, credit cards generally provide more protection against fraudulent activity. But, there are ways to mimic some of these protections with a debit or prepaid card. Deciding which is best for you will help protect your money whether you're spending online or swiping in store.
In very simple terms, the Credit Limit or the Credit Card Limit is the maximum amount that a person can spend on his or her Credit Card. This limit is something that the issuing company fixes.
Credit cards have better protections against fraud than debit and ATM cards. With a credit card, you'll pay no more than $50 in the event of fraudulent transactions — and many issuers pledge that you'll have no liability whatsoever.
One of the biggest issues with credit cards is that they often come with high interest rates. If you don't pay off your balance in full each month, you could end up paying a lot more than you originally spent due to the interest charges.
What Credit Card Do the Super Rich Use? The super rich use a variety of different credit cards, many of which have strict requirements to obtain, such as invitation only or a high minimum net worth. Such cards include the American Express Centurion (Black Card) and the JP Morgan Chase Reserve.
If a wealthy American must make a large purchase like a new car or a piece of expensive equipment, they may use their credit card to pay for it and then pay off the balance over time, rather than having to pay for it all upfront. This allows them to have more cash to finance investments or other opportunities.
Paying the balance in full has great benefits. If you wait to pay the balance or only make the minimum payment it accrues interest. If you let this continue it can potentially get out of hand and lead to debt. Missing a payment can not only accrue interest but hurt your credit score.
Most of your payment will go to paying interest. Since credit cards carry high interest rates, it can take a long time to pay off debt when only making the minimum payment. If you miss a credit card payment, then the bank can charge you interest on top of the original payment owed.
By paying your debt shortly after it's charged, you can help prevent your credit utilization rate from rising above the preferred 30% mark and improve your chances of increasing your credit scores. Paying early can also help you avoid late fees and additional interest charges on any balance you would otherwise carry.
Absolutely, while it's possible to max out your Credit Card and subsequently pay off the balance, it's generally ill-advised. Maxing out your card can lead to a high Credit Utilization Ratio, which may negatively impact your Credit Score.
Cell Phone, Internet, Cable. Phone companies, as well as cable and internet providers, make it easy to set up these payments and typically don't charge a fee for credit card payments. Some credit cards include theft and damage insurance for your phone and double or triple points for phone bills.
Introduction: My name is Dan Stracke, I am a homely, gleaming, glamorous, inquisitive, homely, gorgeous, light person who loves writing and wants to share my knowledge and understanding with you.
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