Credit Cards

5 Things You Should Never Put on a Credit Card

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5 Things You Should Never Put on a Credit CardCredit cards are powerful financial instruments, but cardholders must use them carefully to avoid becoming trapped in a cycle of debt. At the same time, it can be difficult for cardholders to contemplate a huge expense knowing that a bank has already extended them sufficient credit to just charge it.

Yet a credit card is often the worst means of finance. Credit card debt is unsecured and typically carries a higher interest rate than a car or home loan. And unlike a home mortgage or student loan, credit card debt is never tax deductible.

Of all the things that be financed with a credit card, here are the five worst:

1. College tuition

Many adults can trace their debts back to their college years when they didn’t fully appreciate how difficult it would be to pay off credit card charges, especially after interest starts to compound. And in many cases, college graduates aren’t able to land a job as soon as they hoped, or they have insufficient income to start paying off their debt.

Rather than using a credit card, higher education can be funded through low-interest student loans, scholarships, grants, and part-time jobs. And if these sources are inadequate, students can consider a less expensive school or delay enrollment until they have more savings.

2. Taxes

When taxpayers find themselves with an unexpectedly large liability, it can be tempting to just charge it. And conveniently, the IRS makes it easy to use a credit card to make payments through one of several companies that they authorize to accept money on their behalf.

However, there are several reasons why you shouldn’t. First, the payment processors will collect a fee of between 1.88%-2.35%. Also, the IRS will allow you to set up a payment plan with a more competitive interest rate. IRS underpayment interest rates change each quarter, but are currently at 3%, far better than any credit card’s standard interest rate. And finally, taxpayers should seek to have their withholding adjusted to ensure that they are not underpaying taxes in the future.

3. A big wedding

When couples chose to host a lavish event, it is easy to understand why some people think that the wedding industry is going too far. Planning a wedding is not easy, but couples need to live within their means and avoid financing the occasion with their credit cards. It is a special day for newlyweds, but it is not worth it when they are forced to begin their lives together underneath a mountain of debt.

4. Vacations

People take vacations to take a break from their everyday lives and to reduce stress. But when travelers finance their trips with their credit cards, they will only be returning to the difficulties caused by their debt. Going camping, staying at hostels, and visiting family and friends are just a few of the ways that people can have a getaway that fits within their means. And if that is not your idea of a dream trip, contribute to a vacation fund each month until you reach your goal, and use your savings to finance a vacation.

5. Medical bills

Treatment costs for the uninsured can be staggering, but that is no reason to turn to credit cards as a means of finance. Ideally, the uninsured should shop around before seeking treatment, but that is not always possible. But even after receiving the bill, most providers will be able to adjust their rates and offer payment plans with little or no interest.

It is one thing to earn rewards by making a charge to a credit card that can be immediately paid off, but it is another matter to use credit cards as a means of finance. By understanding why it almost never makes sense to finance some charges with a credit card, you can make the best decisions when presented with a major expense.

Image: Carine06

  • http://www.joetaxpayer.com JoeTaxpayer

    I appreciate the note “It is one thing to earn rewards by making a charge to a credit card that can be immediately paid off” because that’s the bottom line, if you are paying in full, and there’s no extra fee to use the card, then ‘everything’ should really be run through that reward card. And if you are not paying in full, I’d be hard pressed to suggest that there’s anything you should charge, except perhaps food, if it’s come to that.
    If people started young realizing that carrying debt on a high interest card should be avoided, they’d learn the first step toward a financially sound life – “live beneath your means.”

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  • Elaine

    You can charge your vacation, like your trips that must be paid in full before you go, like Cruises, Disney World,etc— if you have the money available. Exactly, do not live beyond your means, if you can’t pay your bill off within a month or two at most, you are living beyond your means!Credit card companies LOVE to be able to suck more and more out of you!

  • Bill

    There is nothing you should not charge on your credit card, If you can not pay it in full at the end of the month, do not charge it. I charge everything on my credit card. It makes tracking your expenses easy.

  • David

    As long as you have the discipline and REALIZE that this is real MONEY you are spending and therfore you have the means to pay the bill off entirely at month’s end, go and use the credit card’s money. Let your money stay in the bank ’til the bill comes.

    • niles

      imagine a world where there are no more banks, when society has completely broken down across the entire planet. The US isn’t quite there yet, but 60% of the rest of the world is rushing headlong into catastrophe.
      There is no other form of borrowing money that is more usury than a credit card, other than many of the mortgage packages the banks sold from 1994 onward, while we were still trying to figure out how the S & L disaster imploded the economy in 1987, cost the taxpayers $785 billion over the next 9 years, and led directly to the Crash of 2007, when Bear Stern was forced into liquidation by the Feds.

  • Rob

    It is also good to run your vacations and other charges through your card. One reason is you can Track all of your spending. If you use cash every where you loose track of your spending and you will just go to the bank and get more cash Charging fine as long as your paying it off and do not charge more. You also earn awards and a lot of credit card companies break down all the charges to charts so you can see hat you have spent. Even mobile apps out there

  • joepiso

    As long as you have the money set aside and have control over your spending…charge it. Aside from getting the best deal, most credit cards (Amex, Discover, RBSNB,etc) give cash back on the amounts charged.

    • cherriecherry

      Well right now I am getting a $113.77 interest each month from one of the credit companies you mention.

  • Robin

    Only charge what you can “completely” pay off when the bill arrives.

  • Billy Lingha

    Don’t do what I did. I got so far in debt with credit cards a few years back, that I was getting cash advances off one card, in order to pay the other. Like the old saying goes, “Borrowing off Peter to pay Paul.”

  • http://blogcredit.com Ollie

    I had a decision to make when my child was 8 years old and that was to put his dr. bills for juvenile diabetes on a credit card or not. I was faced with either pay the dr. or be sent to a credit agency. The credit card seemed to be the logical choice either go into debt further or have my credit destroyed. Maybe the credit card wasn’t the greatest because I am still paying on the 40,000 that I accumulated and my son is 28 yrs. old but this is what the country has come to. We were always in the cracks to much money for help and not enough to pay for it. It would have been better if we had never tried to marry and raise our kids right and work to do it.

    • David

      There are always exceptions–for the right reasons–to a rule. Did you discuss the bills with your medical providers? You might have been able to get a discount, or the providers most likely would have arranged for a monthly payment plan. If they arranged for a payment plan, the interest rate would have been lower than the 18% (or higher) that you are paying on your credit card, and by now the bill would have been paid off, instead of still paying the credit card company 20 years later.

  • Janet

    I’ll never forget the look on the dealer’s face when I bought a new car and charged it.
    I paid it off when the first payment was due, of course. The poor dealer was left paying
    a transaction percentage while I got great rewards.

    • Credit.com

      Janet – I think that’s one of the best credit card reward stories I’ve heard. Brilliant. We’d love to hear the details on the cost of the car, your return on rewards and what you ended up using them on. I’m imagining a trip to Tahiti or better, cash rewards. Regardless, thank you for sharing. We love it.

  • Frank

    I charge my vacation every year but i have 1 credit card that i only use for that.

  • john

    There is no reason NOT to charge everything on your card when on vacation. If you have a card that will not charge a foreign exchange fee, then that’s the one to take to Europe, but do not take a large sum of cash. Make sure to trade for traveler’s checks before you leave.

    • Nicholas

      Each year the credit card is used to cover travel and hotel expenses. Have had the year to save for the annual vacation. Once the charge is listed as a credit card transaction, the money owed is then transferred to the credit card. Have never made a lot of money, but have the discipline to save a pre set amount each month as well as put away any money earned from ” overtime.” The points earned to by this November, will give me a return ticket to Halifax . Sweet!!!

  • http://Yahoo Mel

    I never made a lot of money all my life. I traveled quiet a lot the last seven years and used my credit card always. I just have to make sure that before I use my credit card that the money was already at the bank to pay it off. Never paid interest on my one and only credit card since 1990. As the old saying says, It is not how much money you make? It is how you spend the money you already have.
    Went to Italy, Germany, Austria, France, Denmark, Spain, Slovakia, Japan , Philippines , Canada and all over the US and never paid interests on my credit card. And on top of it all I was able to used the mileage earned for one trip to Europe and seven round trip across the US and Canada.

    • Gerri Detweiler

      Sounds fun – and stress free since you aren’t running up debt.

  • georgesprosound@yahoo.com

    I disagree taxes and college loans are perfect things for credit cards, you can not include taxes or tuition in you upcoming bankruptcy, but it you shift that debt to a unsecured dischargeable line of credit you will be able to dump that undischarable debt.

    • Gerri Detweiler

      Maybe, maybe not. That may be challenged if the creditor catches it.

  • Mars

    I 100% agree with all of the great advice, but don’t people get credit cards because they don’t have cash up front to pay for large purchases? Sadly that is what more people do than the “pay it off each month” plan as that is not reality for 99% of Americans.

    • Gerri Detweiler

      The statistics show that more than half of consumers pay their balances in full each month. So for the majority it is a payment tool. But you make a good point – many do get stuck with deb they can’t pay off as well.

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  • mary

    I read this to my friend over the phone and he pointed out if you pay by credit card and have no money you can always go bankrupt! This is why intrest rates are so high

    • http://www.credit.com/ Credit.com Credit Experts

      You do have a point. Fortunately, the bankruptcy reform laws that were passed in 2005 make it a little more difficult to declare Chapter 7 bankruptcy where all personal debt liability is erased. As part of the bankruptcy reform laws, if a person’s income is more than the state’s median income, they’ll have to file Chapter 13. With Chapter 13s the debt isn’t simply wiped clear, instead you’re required to pay back a portion of the debts over a repayment plan of five years. This, at least, makes it a little more difficult for people to abuse the system to simply “go bankrupt.”

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  • http://www.credit.com/ Credit.com Credit Experts

    Nathanial – Unfortunately, this isn’t actually a good idea at all. Putting your student loans on a credit card won’t work for a number of reasons. You can read more about that here: Can You Erase Student Loan Debt Through a Loophole?

  • Marty Lancione Sr

    Great advice if you like to listen to the experts with the most education like from Enron(Power genius) Tyco, MCI( Phone gurus), The government( Financial planners of the future). Wow, have always lived for today, not what the experts think. My health and integrity are the most important things to me, not my wealth. Have spent my 3 of 4 retirement accounts on a 20 yr old timeshare, weekly vacations I would never have taken. The other 2 401k’s were spent on homes to live in. On my 4th 401k in the past 5 years. Great savings accounts! And if I had listened to WalMart after working 10 years for them, the over $400 billion in sales/yr china corporation, I would of had no health and a will work for food sign outside there doorstep. So advice is relative to whom is getting the best benefit!

  • http://www.credit.com/ Credit.com Credit Experts

    Nan — This is an excellent story, and quite brilliant actually. Just goes to show credit cards can offer great perks if you use them to your advantage, rather than the other way around. Love it!

  • Therese Forgette

    smart

  • Jason Steele

    That is a good point, taxpayers should check with their tax preparer or attorney to see whether or not the installment agreement and any applicable penalties outweigh the cost of credit card interest and payment fees. In some cases, the failure to pay penalty can be removed

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