Nothing beats convenience, except the consequences of using that convenience improperly. When it comes to making purchases, credit cards offer the ultimate in convenience. However, used unwisely, convenience can easily become controversial. Sadly, most people tend to use them with little regard to strategy. To help you avoid that trap, here are some things you shouldn’t do with credit cards.
Pay Household Bills
When things are tight, and that cable bill is coming due, there might be some temptation to use a credit card to deal with it “just this once”. However, that’s a very slippery slope. “Just this once” could become the next few months and before you know it, interest has accrued and those few months have snowballed into insurmountable debt.
Pay Your Mortgage
Similarly, paying your mortgage with a credit card is trading low-cost debt for high-cost debt. In most cases, the interest on a mortgage loan is around five percent, while the interest on a credit card is in the 20 percent range. The good news is most mortgage lenders won’t accept credit card payments directly. However, there are third-party services out there that will help you circumvent this policy—don’t do it.
Buy a Car
Yes, it’s very enticing to plunk down your plastic to cover the down payment and drive away in a new car. (Or, if your credit line is large enough, charge the car altogether.) Then again, you’ll pay for more interest if you do it this way than you would by taking out a conventional car loan. Further, if you don’t have the cash on hand to make the down payment, you probably can’t afford the car right now anyway. The only way buying a car with a credit card makes sense is if you can pay it off before the billing cycle ends and interest accrues.
Make Insignificant Purchases
Buying a five-dollar cup of coffee with your credit card on your way to work every day might seem like a benign indulgence, but that can result in a $200 credit card bill at the end of each month. Paying with the card might make it seem like you’re doing nothing at all, but if interest can accrue on top of that $200, you’ll be looking at a rather significant repayment amount—for a single cup of coffee every day. Is it really worth it?
Taking Cash Advances
Getting a short-term loan against your credit card will entail paying a much higher interest rate—in addition to a transaction fee. Sure, there might be a circumstance in which you have no other choice but to take some time to consider every other possible alternative before you make the decision to do this. Cash advances should be reserved for absolute emergencies only.
Make a Student Loan Payment
Just as with mortgage payments and household bills, paying your student loan with a credit card is trading low-cost debt for high-cost debt. Further, if you get into trouble and have a problem making payments on your student loan, you can always request a deferment to give you time to get your finances in order.
If Cards Get Out of Hand
Any of the above situations can put you in a position in which you might find yourself having trouble making even the minimum payment on your credit card debt. If this has already happened to you, consider hiring a debt settlement firm such as Freedom Debt Relief to help you reduce the obligation to a more manageable figure.
You could also seek a consolidation loan, such as those provided by the invitation-only loan company, Consolidation Plus, to reduce your monthly expenses and make repayment easier. Either way, taking note of these things you shouldn’t do with credit cards will both save you money and help protect your financial situation.