In today’s world, credit cards offer convenience and benefits like rewards and purchase protections. However, not all expenses should be charged to your card. Here’s a detailed list of purchases that are best avoided on credit cards to keep your finances healthy.
High-Value Items
Gen Z has been accumulating credit card debt faster than any other generation, with a notable portion of this debt being used for luxury item purchases. This shows luxury purchases can quickly escalate your credit card debt, making them a risky choice for credit card spending. If you can’t afford to pay off the balance immediately, reconsider the purchase or save up until you can afford it without borrowing..
Cash Advances
Withdrawing cash using your credit card is expensive due to high fees and immediate interest charges. Cash advances often have higher interest rates than regular purchases, and the interest starts accruing immediately. This option should be a last resort.
Educational Expenses
Using a credit card to pay for tuition and other educational costs can be costly due to the processing fees and high-interest rates involved. Student loans, scholarships, and grants are more affordable alternatives. Educational loans, especially federal student loans, typically have lower interest rates compared to credit cards.
Special Events
Financing special events like weddings with a credit card can start your married life with significant debt. A 2024 survey by U.S. News & World Report revealed that 56% of newlyweds went into debt to pay for their wedding, with 39% using credit cards to cover expenses and carrying a balance, often incurring interest rates of 20% or higher. Instead, save in advance and set a realistic budget to avoid high-interest credit card debt. Opening a savings account specifically for wedding expenses can help manage costs without incurring debt.
Household Bills
Although some utility providers allow credit card payments, they usually include a convenience fee. This additional cost can be avoided by paying directly from your bank account. Regularly using a credit card for these recurring expenses can lead to high balances, making it challenging to manage monthly finances and potentially increasing your debt load.
Peer-to-Peer Payments
Apps like PayPal, Venmo, and Cash App allow you to link your credit card for payments, but they charge around 3% for each transaction. Moreover, credit card companies might treat these as cash advances, incurring additional fees and higher interest rates. Also, according to MyCreditUnion.gov, person-to-person payment apps can increase risks of fraud and scams.
Medical Bills
According to the Consumer Financial Protection Bureau (CFPB), medical bills put on credit cards often come with high-interest rates after initial teaser periods and can result in significant debt accumulation. It can impact your credit utilization ratio, which can hurt your credit score. It can impact your credit utilization ratio, which can hurt your credit score. It’s often better to negotiate a payment plan with your healthcare provider, which can be interest-free.
Real Estate Payments
Using a credit card to pay for rent or mortgage payments can seem convenient, but it often comes with significant fees. This extra cost can quickly add up, negating any rewards you might earn and putting additional strain on your finances.
Leisure and Travel
While it’s easy to charge vacation expenses to a credit card, it can lead to debt that takes months or years to repay. Planning ahead and saving for your trip can help you enjoy a debt-free vacation. Setting a vacation budget and saving in advance can help avoid the financial strain of credit card debt.
Gambling and Betting
Charging online gambling and betting transactions to your credit card can lead to high-interest debt, as these are often treated as cash advances. This practice also increases the temptation to spend more than you can afford, potentially leading to significant financial problems.
Daily Expenses
Small, frequent purchases such as daily coffee or snacks can quickly add up on a credit card, leading to large monthly bills. It can be challenging to track spending and stay within budget. Using cash or a debit card for these minor expenses can help manage finances better and prevent unexpected debt accumulation. Plus, because credit cards delay the charge until the end of the month, they can create a false sense of financial security, making it easy to overspend.
Government Fees
Using a credit card to pay taxes might seem like a good idea, but the associated processing fees, make it less cost-effective. According to the IRS, the fees for paying taxes with a credit card through authorized third-party payment processors are typically around 1.87% to 2.35% of the amount paid. Setting up a payment plan with the IRS is often a better option, providing more manageable terms without high fees.
Big Purchases
Financing large purchases like home appliances or electronics with a credit card can lead to substantial debt. If you can’t afford to pay off the balance immediately, reconsider the purchase or save up until you can afford it without borrowing. This approach helps avoid high-interest charges and debt accumulation.
Start-Up Costs
Using credit cards to fund a start-up can be risky. Most start-ups face uncertain financial futures, and high-interest credit card debt can become overwhelming. Exploring other funding sources such as business loans, grants, or investors is a safer approach. The high failure rate of start-ups makes credit card debt a particularly risky funding option.
