You can use a credit card to get almost anything in a snap. If you feel like it, you can whip out your card to spring for a pair of expensive headphones or take your other half skydiving. It’s fine if you have the money to cover the cost, but there are times you should think twice about before using your credit card.
Putting certain items on a card can lead to a heavy debt load, strained friendships, or even a trip to the credit counselor. In some cases, there are just smarter ways to pay.
Here are five things you shouldn’t put on a credit card, along with alternative payment methods.
Expensive medical bills
Accidents happen all the time and some are more serious than others. After a trip to the ER, you get an eye-popping medical bill, and the provider pressures you to pay.
“Don’t pull out your credit card to make this financial headache go away,” advises J.R. Duren, a personal finance analyst at consumer website HighYa.com. Using a credit card can cost you hundreds of dollars or more in interest. “Also, putting a big medical bill on your card can affect your credit utilization rate, the percentage of available credit you’re using on your cards, which then can hurt your credit score,” he says.
Alternative: Keep your credit healthy by talking to the medical provider as soon as possible and before the debt gets sent to collections.
“Doctors, hospitals and other healthcare providers are almost always willing to set up a payment plan,” Duren says. According to Duren, he and his wife were able to set up zero-interest payment plans to pay out-of-pocket costs of about $4,000 from the birth of their son in 2017. “Medical bills are so expensive that everyone has a big tab,” Duren says, “and few people can pay it all at once.”
Student loan payments
Worried about being able to make your next student loan payment? You’re not alone. About one in four borrowers say making their next student loan payment will be a struggle, according to a 2018 survey.
Resist the temptation to resolve the situation by whipping out your credit card. By using your credit card to pay back your college tuition, you’re hurting yourself by adding extra interest. It’s not wise to add a second, higher interest rate onto your existing student loan interest charges.
“Paying double interest is never a good idea,” Duren says.
“Making a habit of putting student loan payments on a card can aggravate your debt problems,” he adds.
Alternative: If you have federal student loans, under certain circumstances, you can apply for deferment or forbearance to temporarily stop making payments or reduce the amount you pay. Or check out these federal student loan repayment plan options to see whether you can find a plan that eases the burden of loan payments, if you qualify.
“If you’re really in a jam, you can talk to your student loan servicer about changing your repayment plan,” Duren says.
You’ve already daydreamed about spending your tax refund on a new flat-screen TV when you’re hit with reality: You’re not getting a refund. In fact, you actually owe money to the IRS. If you don’t have a big chunk of change sitting in your bank account, you might want to reach for a credit card, which is a very bad idea. “Yes, you can pay income tax with a credit card, but that doesn’t mean you should,” says Ben Watson, a CPA and financial coach who’s the virtual chief financial officer at DollarSprout.com.
The IRS uses several card processors that charge fees ranging from 1.87% to 1.99% of your payment. Even worse, if you put this on your credit card bill and are unable to pay it off right away, the compounding interest that accumulates on the card can become your “worst enemy,” Watson says.
Alternative: Make sure to file your taxes on time to avoid getting hit with a 5% late filing fee, Watson says. Then, check out the IRS payment plans.
If you’re able to pay your tax bill within 120 days, you can set up a short-term payment plan for free. If you need more time, you’ll wind up paying a fee, but here’s the bottom line: you’ll likely pay much less than you would have with a credit card.
Putting all of the expenses for a vacation on a credit card might sound alluring, but it isn’t worth it unless you already have the money in your bank account to pay off your entire balance at once. Even if you have a specific credit card for travel purposes and the rewards are great, don’t use your card unless you have the ability to pay for the entire vacation with your debit card.
It’s easier to think about the consequences after you’ve contributed significantly to your credit card balance, but don’t give in. A credit card payment is the souvenir you never wanted, a lasting reminder of your vacation and careless spending habits.
Alternatives: Take a “staycation” and be a tourist in your own city. There are plenty of low cost activities that you can do, some of them can even be free! Check out that bar you’ve always wanted to go to, visit that museum that been on your to-do list, or go on a nature hike.
Fancy group dinner
Dining out with a large group is already a headache when trying to figure out the bill. You may be tempted to cover the bill with your card to make things easier. Plus, you can reap the credit card rewards — and you expect others to reimburse you. Simple, right?
Probably not. Instead, you’ll most likely end up footing someone’s portion of bill and overpaying for your share. It will end up costing you more than any cash back rewards you earned with this purchase.
Alternatives: Ask your server if you can split the check into smaller bills or have everyone at the table send their share via a payment sharing app before you pull out your card. Be sure to include the tip in your calculations. You could also not volunteer to pay and use cash to pay for your share. By bringing a set amount of cash, you’re setting a budget for yourself which limits the chances of going overboard.
As a general rule, it’s best to ask yourself: Is this really worth racking up credit card debt? Most of the time, the answer is no. There are instances when having a credit card can help if you’re financially in a bind, but some types of transactions do more harm than good.