Using a credit card to pay for everyday purchases can be a convenient way to cover your expenses but only if you’re smart about how you use them. As long as you can afford to pay off your balance in full each month, you may be able to take advantage of some significant perks when you use your card.
While it’s better to pay for certain things with credit, you need to use caution before you pull out the plastic. Think twice before you use your credit card to pay for any of the following expenses.
1. Taxes
If you get hit with a big tax bill and you don’t have the cash to pay it off in full, using a credit card to cover it may seem like a no-brainer. While the idea of owing money to the IRS may make you a little nervous, you’re actually better off paying Uncle Sam directly than you would be if you charged the whole amount.
When you pay your taxes with a credit card, you’ll have to cough up a convenience fee to your tax service provider, which is typically around 2 to 3 percent of what you owe. Factor in the regular interest rate on your card and you could end up paying significantly more to clear your tax debt. The IRS offers several different payment plan options to taxpayers and even though you’ll have to pay interest on the money, it’s usually at a much better rate than what you would get from the credit card company.
2. College Tuition
Student loan debt has become a hot topic in recent years, as young adults across the country are borrowing more and more money to finance their education. While taking on student loans is not an ideal way to pay for college, it’s a smarter financial move than using a credit card to cover tuition.
Unless you’re able to pay off the bill in full, charging your tuition payments could make your degree more expensive in the long run. In terms of interest, student loans typically offer much lower rates than what you would get with a credit card. Depending on which school you go to, you may also have to fork over a convenience fee for using your card.
When it comes to a choice between two evils, you’re better off with a low-interest student loan than a credit card but don’t forget about the other payment alternatives. Scholarships, grants and work-study programs are great options for covering your college expenses without racking up a ton of debt.
3. Medical Bills
If you don’t have health insurance, paying for medical care out-of-pocket can be a challenge, especially if you’re being treated for a serious injury or illness. When the doctor bills are piling up, it can be tempting to just put it all on a credit card and deal with it later. While paying with a credit card may ease the burden temporarily, it can eventually lead to a bigger headache.
Instead of paying 10, 20 or even 30 percent interest to the credit card company, you should try to work out a payment plan directly with the hospital or doctor. Chances are, you’ll pay less in interest and your health care provider may even offer some type of discount as long as you’re making an effort to get rid of the debt.
4. Mortgage Payments
Using a credit card to cover your mortgage payment is a good idea only if you can pay the bill off in full each month. If you can’t, you’re potentially setting yourself up for financial disaster. Charging even one mortgage payment to a credit card can be a quick fix but it could create even bigger problems in the long run.
In terms of interest, the rate you’re getting for your mortgage is probably much lower than what you’re paying to the credit card. If you’re struggling to keep up with your mortgage, it’s likely that you won’t be able to pay the credit card bill in full. If the minimum payment on your credit card increases, you may find yourself struggling to keep up with that bill too, which puts even more strain on your finances.
Credit cards can be a double-edged sword and you need to know how to use them wisely. Taking the time to consider the long-term consequences of charging certain expenses may help you avoid financial headaches later on.
