Credit cards are convenient when you don’t have cash and if you plan on paying off the balance at the end of the month. They’re also great in emergencies. But if you’re not careful, it’s easy to accumulate debt.
There are also certain expenses you should avoid paying off with a credit card. Consumer credit reporting agency Experian warns that there are some items you should think twice about putting on a Mastercard or Visa.
Taxes
April is tax season, but it’s not a good idea to pay your bill with your credit card because you will be charged a merchant processing fee for the transaction. Plastiq, for example, charges 2.5 percent for an electronic CRA payment.
In addition, if you use third-party software to file taxes, you may be hit with even more fees. Plus, you want to avoid interest charges on your tax bill, which is particularly bad if the bill is significant and takes some time to pay off.
An alternative is paying off your taxes in installments. The CRA may accept a payment arrangement if you have already “reasonably tried to get the necessary funds by borrowing or rearranging your financial affairs.” While the agency may charge interest, it will be lower than your credit card.
A short-term personal loan is another option that will have lower interest rates than a credit card.
College Tuition
Higher education can be costly, and paying for tuition with a credit card is risky. Interest rates on student loans are usually much lower than those used by credit cards.
In addition, if you charge a large amount on your credit card, it’s likely that your credit utilization ratio will increase (the amount of credit you have used compared with how much credit you have been given by a lender), which will affect your credit score. Plus, most colleges and universities will include a 2-3 percent processing fee for students who pay tuition with credit cards. That can be a lot of additional money if your tuition is several thousand dollars.
Mortgage
Most lenders won’t let people pay for their mortgage on a credit card. However, third-party companies may be willing to help out as long as you pay a costly “convenience” fee.
High-interest rates will be painful if you don’t pay off the credit card at the end of the month. Plus, the mortgage payment would likely be one of your highest expenses, and it will eat into your available credit, which would affect your credit score.
Expensive Things You Can’t Pay Off Right Away
Experian advises against charging a vacation, 4K ultra-HD TV, or other high-priced items on a credit card unless you can pay it off at the end of the month. Interest charges can accumulate fast, and you’ll wind up paying much more for the item than it originally cost. Plus, big purchases will increase your credit utilization ratio, which we’ve already established will affect your credit score.
Some credit card companies offer a zero percent introductory rate for a limited time period, but this is only recommended if you can afford to get a new account. The downside is that hard inquiries on credit reports can cause credit scores to “take a temporary dip.” And if you don’t pay the purchase off within the introductory period, interest rates will be very high.
Medical Bills
Insurance doesn’t always cover your medical bills, but there are alternatives to using a credit card to pay them off. First, check to see if you can pay off your bill in installments because you may not be charged interest at all.
Also, it’s worth reaching out to the medical provider or hospital to see if you can negotiate a lower payment.
Stocks and Other Investments
Stocks can be a very high risk, so it’s not a good idea to pay for them with a credit card. Even though it’s easy to buy them with a Visa or Mastercard, use a credit cash advance and other workarounds.
