Plastic definitely isn’t for everybody, and it shouldn’t be used for everything. Actually, I’m against using it at all. Well, OK only in the case of an emergency or where you just can’t use cash or a debit card. If you have to use it, it’s generally a good idea to never charge what you can’t pay off at the end of the month.
Of course, not all credit mistakes are created equal. There are definitely some items that you should keep off your credit cards at all costs. Here are a few things that no matter how tempting, you should never pull out the plastic.
Mortgage Payments — It’s never a good idea to pay one debt with another. Most lenders won’t let you pay with your credit card but there are always ways around that like taking out a cash advance to get the money to make the loan payment. Bad idea, you are usually charged a higher rate for a cash advance in addition to a fee.
College Tuition — A lot of us can trace debts back to our college years when we didn’t really grasp how difficult it would be to pay off all of the credit card charges. Now more than ever is it a bad idea to charge school as the employment rate out of college is at a record low.
Your Taxes — It can be tempting to pay that large, unexpected tax liability by using your credit card, and the IRS even offers it as an option, but don’t do it! The payment processors that collect tax payment for the IRS will collect a fee of 1.88 percent to 2.35 percent. Also, the IRS will allow you to set up a payment plan with a better interest rate. IRS underpayment interest rates change each quarter, but are currently at 3 percent, that’s way better than any credit card you are going to find in your wallet. And just as a suggestion, if you are caught with an unexpectedly high tax obligation, you might want to go ahead and adjust your withholding to ensure that you don’t underpay your taxes in the future.
Medical Bills — Just like your taxes, don’t reach for the plastic on this one either. If you are stuck with a large medical expense, talk to the hospital and doctors involved and see if you can get put on a payment plan. These payment plans are usually cheaper than what you would be paying out in interest on your credit card. …And if they’re not, it’s possible you can negotiate with the institution and get it lowered.
Credit Cards — This should go without saying but I’ll list it anyway. Don’t pay a debt with a debt! If you don’t take away anything from this article remember this. Robbing Peter to pay Paul was a bad idea then and is still a bad idea today. Don’t just move debt around, work to pay it off!
Vacations — Your vacation should be a break from the everyday trials and tribulations of our lives and to reduce stress. But when you finance your trip with your credit cards, you will only be returning to the difficulties caused by increasing your debt. Go camping, visit family and friends or take day trips using your home as base. If that’s not your idea of a dream vacation, start a “vacation fund” and add to it each month until you reach your goal, and use that money to finance your vacation.
Gambling — This doesn’t just mean the craps tables in Vegas, it includes lottery tickets. It is risky enough to be gambling but financing your gambling habit with your credit cards is definitely a recipe for disaster.
It is one thing to earn those reward points by making a charge to a credit card that you will each month pay off, but it’s a whole other matter to use credit cards as a means of finance.
By understanding why it never makes sense to finance your debt with a credit card, you can make the best decisions when presented with a major expense.