Is paying with a credit card always a good idea?
Credit cards can be an amazing tool when used wisely, and the benefits go beyond reward points. From managing your payments and purchases responsibly to using your cards strategically to build your credit score, credit cards can help you establish your place in the financial world.
However, they can also create financial headaches for you when they are used to buying the wrong things. If you think paying with a credit card for any purchases is a good idea because of the many rewards and perks you’ll get, think again.
To set some parameters for when the best time to use this plastic card is, we asked two personal finance experts to share their input on when to skip paying with a credit card, along with why it would be an awful idea to do so.
Let’s get started!
1. Bail bonds
Even though creditors (other than your credit card issuer) won’t be able to tell you you were charged a bail bond, there’s still a solid reason not to put this transaction on your card.
According to personal finance experts, paying with a credit card in a situation like this will typically involve a fee that you’ll be charged. Since a bail bond is considered a cash advance by credit card issuers, using the card to pay for a bail bond will usually mean you’ll incur a fee (typically around 3%, but it could very well be higher) as well as a higher interest rate (like 25%).
2. Mortgage payments
According to experts, paying with a credit card is a terrible idea when it comes to mortgage payments. If you’re low on cash for one month, it may be tempting to make this type of payment with a high-limit credit card, but there are issues with this thinking.
For starters, many mortgage companies won’t allow you to do that. Although there are third-party companies that will let you use your credit card to pay your mortgage, they often charge fees for this convenience, which will increase the amount you’re paying in bills each month.
Even if you manage to circumvent your mortgage servicer and find a method to pay your mortgage with a credit card, it’s still a terrible idea if you aren’t able to pay off your card balance in full each month. You are already being charged interest on your mortgage, so the wise thing to do would be to not add more interest to the amount you’re putting on your credit card balance.
Moreover, paying with a credit card in a situation like this will automatically lower the amount of credit available to you, which may lower your credit score.
3. Medical bills
When you don’t have enough cash in your wallet to pay for medical bills, one of the worst things that you can do to both your current and future finances is to put those on your credit card. Medical care can be pretty expensive, and paying with a credit card for it is a bad idea.
If you have hefty medical bills that you can’t pay immediately, don’t pull out your credit card—contact the hospital’s financial offices and ask them to set up a payment plan for you. Chances are, the hospital will charge you much less in interest than your credit card issuer.
4. Alternate payment methods
Alternate payment methods include everything from person-to-person cash transfers to money orders and are also usually considered a cash advance. Paying with a credit card for such purchases may seem convenient, but you’ll end up paying a lot more for it than you would expect, including a high-interest rate and a one-time fee of around 3%.
Keep reading to discover other situations where paying with a credit card is a terrible idea!
5. Your taxes
While it’s possible (and perfectly legal) to pay your taxes with a credit card, there’s a very good reason why you shouldn’t: Chances are your tax preparer will charge you a convenience fee of 2 to 3% for using a card. If you owe Uncle Sam only a few hundred dollars, that fee won’t be significant.
On the other hand, if you’re on the hook for a tax payment of thousands of dollars, that 2 to 3% fee can really add up if you’re paying with a credit card. If you think you won’t be able to pay your total tax debt when it’s due, talk to your tax preparer or reach out to the IRS ahead of time and work out some sort of payment plan.
6. Virtual currency
Many people will tell you that purchasing virtual currency like Bitcoin is risky, no matter how you buy it, but paying with a credit card for it adds even more risk.
The world of Bitcoin is quite unregulated, and many operators are shady. The main reason why you should be cautious of virtual currency sellers who accept credit cards is that it’s pretty scary for them to do so—buyers can call the credit card issuer to revoke the charges while keeping the virtual currency. Be wary whenever giving your credit card information to a third-party seller.
7. Down payments of any kind
If you don’t have the money required for the down payment on a loan, don’t get the loan. If you’re in this situation, it’s clear that you cannot afford the loan at the moment. If you still do this, you’ll be adding a significant cost to the sales price of your purchase, which will automatically mean high-interest rates on your credit card.
If borrowing is necessary, wait and save up your money for the down payment. When you eventually qualify for financing, apply.
8. Automobiles
Think this is a crazy move? People have done it. Yet, paying with a credit card to get a car is a terrible idea, and you shouldn’t do it.
Many auto dealers won’t take credit cards, as the fees to process a credit card transaction are very high. However, if you do find one willing to take your card, chances are you’ll pay transaction fees of 1 to 2%. By doing so, you could end up paying hundreds of dollars more for the car than you would have otherwise.
In addition to paying more than you should, with many vehicles costing far more than $10,000, you’re likely going to max out your line of credit, which will lower your credit score. So, no, paying with a credit card in this situation isn’t a good idea at all.
Why not borrow from a credit union or bank if you don’t have all the cash you need? Rates as low as 3 or 4% are possible, while the average credit card comes in at roughly 15%. Not only will you get a favorable interest rate, but you’ll also be adding a car loan to your credit report, which will improve your credit score.
9. Your business startup expenses
A business without a credit rating is going to have a hard time getting a credit card without the personal guarantee of its owner, board member, or company officer. Because of this, many people who start their new business are paying with a credit card to cover all the necessary expenses. Personal credit cards.
This is an awful idea, as it typically takes at least several years for a business to become lucrative. In the meantime, you’re paying enormously high interest on debt that you can’t afford to pay back immediately. Moreover, if your business fails, you’re on the hook for all of the charges.
If you must borrow money, a better option would be going with a small business loan, which is usually around 4.5%.
10. College tuition
Last but not least, one of the things you shouldn’t be paying with a credit card is college tuition. Just like medical expenses, the cost of college tuition is now well above the cost of living. If you’re a broke college student, it can be very tempting and convenient to pull out your credit card and pay for that tuition bill.
However, experts recommend not doing so because chances are you won’t be able to pay off your credit card debt before you have to start paying interest on it. Moreover, many schools will charge you an extra fee of 2 to 3% for the “convenience” of paying your tuition with a credit card.
So, no, paying with a credit card in this situation isn’t a good idea at all. If you’re having a hard time making your tuition payments on time, talk to your adviser or reach out to the bursar’s office at your school. They will tell you the types of low-interest student loans, scholarships, work-study programs, or grants available to you to help you pay for your education.
The good news is that things like clothing and accessories are the best things you can purchase with a credit card. Here’s the clothing collection from Amazon. If you liked our article on things you shouldn’t be paying with a credit card, you may also want to read 6 Brilliant Little-Known Credit Card Perks You’re Missing Out.
