When used correctly, your credit card can be a useful personal finance tool. Credit cards can fund everyday purchases, build your credit score, and even earn valuable rewards. But when you use your card the wrong way, you can easily fall into financial hot water and damage your credit.
There are certain things you should always avoid charging. Here are five things you shouldn’t put on your credit card:
1. College Tuition
Student loans, scholarships, and employment can all help you pay for your college education. These options are preferable to using a credit card for tuition because credit cards charge interest on purchases you carry month to month. When credit card interest rates are applied to your tuition, your balance can quickly spiral out of control.
Most student loans have lower interest rates than a credit card can offer, and you don’t have to start paying them off until after you graduate. Credit cards, on the other hand, require a monthly payment.
2. Tax Obligations
When you owe the IRS at tax time, it’s tempting to use your credit card to pay it off – after all, you can use your card to pay your tax obligations all at once. But the IRS may tack on a steep convenience fee for the privilege of using your credit card. And unless you can pay off the tax debt on your credit card quickly, you’ll end up accruing interest on top of your debt.
If you’re having trouble affording your debt to the government, the IRS offers solutions – including settlements and repayment programs – that can help you avoid charging the debt to your credit card.
3. Cash Advances
Cash advances let you withdraw cash against your credit card balance. But this can be much more expensive than withdrawing cash from your bank account. Most credit cards charge a cash advance fee and an ATM fee for cash advances. Plus, credit cards often have higher interest rates for cash advances, and there’s no grace period like you get with purchases.
Unless it’s an absolute emergency, you should avoid cash advances at all times.
4. Monthly Bills
Many companies charge extra convenience fees when you use a credit card to pay a monthly bill – this offsets the processing fees they have to pay to the credit card company. And if you don’t pay your credit card balance off before interest hits, you’ll end up owing more money for your bills than they’re actually worth. As interest accrues and more bills come due, it can be easy to get in over your head.
5. Purchases You Can’t Afford
Generally, the best way to use your credit card is to charge your everyday purchases to your card and pay it off in full each month. This will help you build credit, avoid interest, and maintain a low balance on your credit card.
If you consistently charge purchases you couldn’t afford to pay for with cash, your credit card debt will start piling up and accruing interest. When you can, it’s best to pay your balance in full each month and avoid interest altogether.