There are smart ways to use your credit card: you can keep your wages earning interest in a savings account while you spend on your credit card and pay it off at the end of the month, you can even accumulate meaningful points or take advantage of cash-back offers. However, there are times when using on your credit card is going to cost you more than the purchase could ever be worth. Here are five situations where you should not use your credit card:
1. Don’t take your credit card for a night on the town
When you have a big date (or just a big night out with friends) planned, it can be easy to burn through your cash as you pay for drinks, dinner, dessert, or entrance fees, drinks, drinks, and drinks. But what happens when your money runs out at the end of dinner or after the second round of drinks and the night is still young — plus you have to be able get home?
It can be tempting to lay down your credit card and start a tab, but you are going to end up with much more than a headache and a woozy stomach in the morning. You’re going to have a credit card hangover too, and those can’t be placated with a few aspirin and a greasy breakfast. Instead, think about the interest you will be paying on all those rounds, and all the rounds you shouted your ‘new friends’ in the excitement of the evening; is a monster hangover really worth a credit card hangover?
2. Don’t use credit to pay bills
If you have lost your job or are just having trouble making ends meet, a credit card is not the answer. A credit card may solve your problems in the short term, but it is really only making things worse for you down the track. If you don’t have enough money coming in to keep your household running, then you need to find another way. A way that isn’t going to add another bill to the list at the end of the month, and one which will not charge you interest, making it harder for you to ever pay off your credit card debt.
Instead, look at where you can cut back on your costs — can you live with just one car, can you cook at home more than eating out, can you cancel gym memberships and walk more? Then you can contact your bank, the electricity and water companies, and anyone else you owe money to and explain the situation. Chances are you can negotiate more time to pay your bills and even a payment plan for the long term to make things more affordable, without accumulating bad debt.
3. Don’t bet on credit
Online gambling sites make it easy — not to mention fun, at the time — to simply enter your credit card details and try your luck. However, you can lose a lot more than just chips when you gamble with your credit card. On top of losing an online game of poker or roulette, you are losing someone else’s money — the bank’s, and they are going to want to be repaid, with interest.
4. Don’t start a marriage on credit
If you are swept up in the romance of a proposal, you may not think twice about putting the perfect engagement ring on your credit card. However, you should be thinking twice (and three times!) about starting a marriage based on debt — just how long is it going to take you to pay off that ring? How much interest is that ring going to have accumulated before you can pay it off? Not to mention the other debts a young couple has to worry about — student loans, a mortgage, car loan…
Instead, find a way to keep your credit card away from the engagement ring. You don’t want to scrimp on the one you love, but consider borrowing the money from your parents or even better, find out whether there is a family engagement ring which was destined for your fiancée’s finger anyway. Otherwise, explain to your girl that you don’t think it makes sense to start your life together in bad debt, and buy a smaller ring. You can upgrade the ring when you can afford it — have the original diamond reset with a larger one, or put in a more expensive setting.
5. Don’t pay for your taxes on credit
It seems like a good way to earn some credit card rewards points for a bill you have to pay anyway! But paying your tax bill on your credit card can cost you more up front, on top of the interest if you don’t pay it off right away. This is because the IRS is prohibited from paying fees to credit card companies to process their transactions. When you use your credit card to pay for anything, the person you are paying is being charged merchant fees from your credit card company to process that transaction. Most businesses will absorb those fees as part of the cost of doing business so you won’t even notice. However, the IRS is prohibited under the Taxpayer Relief Act of 1997 from paying those merchant fees to the credit card companies, so they charge those fees to you. Therefore, on a $4,000 tax bill, you would actually pay $4,099.60 to cover the service charges. Does paying an extra $100 on your bill equate to enough rewards on your credit card scheme?
As well as the service charges you will have to pay, think about the interest that will accumulate on your tax bill if you don’t pay it off within the interest-free days. It’s bad enough paying tax, do you want to keep paying for it month after month in credit card payments?
One advantage to using your credit card when you go out is that instead of paying a tip every time you get a drink (as much as a dollar or more sometimes) you wait till the end and give a % and that is usually way less than every drink. Call a drink $4 and you are paying 25% by throwing in just a dollar every drink. Wait till the end and pay 20% and save money, some drinks are even less and still come out even better.
I think these are some good suggestions and anyone who follows them will be better off because of them. As you mentioned, people need to be extra wary of fees and surcharges. However, I think that if people can be responsible and stick to a plan then there is no problem using a credit card on dates. It can be a great way to earn rewards points. The key is making sure you plan out the date beforehand and pay off the credit card immediately.
I don’t see a problem with using a credit card in lieu of cash so long as you can pay if off at the end of the month. For most (all?) credit cards, you won’t pay interest while you’re still in grace. Also, if you’re not going to exercise your *credit* then you shouldn’t have credit cards.
When you use your credit card, it’s important that you spend within your means and plan ahead for large purchases. Only poor people (and members of a certain religion) obsessively worry about interest. Paying $4 to borrow $500 for two months is inconsequential.
Because if you plan to spend $50 and end up spending $100, even if you don’t pay interest on the other $50, it’s gone. There is more to being financially wise than just not paying interest.
If you plan on spending $50 and actually spend $100, then what you really need is self control. Being out $50 is not bad if you have something to show for it. If I went out to buy a widget for $50 and I found a better quality product for $100, then I’m not out $50.
Sure, credit cards make it easier to splurge. But it seems like you’re saying “drive a car that only goes 50 MPH that way you’re not tempted to go 100 MPH”.
If it was just that simple (“self-control”), this post, and indeed most PF blogs, would be irrelevant, no?
That’s not what I said. It’s one thing to educate people about best practices, and to steer them away from bad ideas. But you can’t fix stupid. If someone uncontrollably spends more than they intend (or should), then no amount of advice is going to fix that.
I don’t have a PF finance blog because it would only have one post: “If you lack self-control, and/or don’t learn from your mistakes then find someone smarter than you to manage your money.”
Re: engagement ring – Or find a woman who doesn’t want or need a ring, and you’re in even better shape 🙂
Lol, that’s a great idea. I have to agree with #6 – don’t pay for your travels with a credit card, it won’t be worth it…going on vacation and knowing that you owe money for it will just stress you out anyways.
How about including never get a cash advance, especially overseas. The fees will be outrageous!
I would add #6: Don’t pay for your vacation with a credit card (unless paying it in full on the next bill). Who wants a vacation that follows them all year long?
It does seem that all the reasons listed in this article that you should not use your card for, the people that have will file for bankruptcy. It is really tough for everyone out in the world these days. I found a bunch of great articles on the site linked to my name on same scenarios.
It can be a great way to earn rewards points. The key is making sure you plan out the date beforehand and pay off the credit card immediately.
Great list, however I believe that it just depends on the person where or not he or she should bring a credit card around. If that person exhibits a bit of self-control, I am pretty sure number one can be crossed off the list. However, I agree with your third point.
Too many people rack up a huge debt on their credit card when they are young. Its important for parents to start teaching children how to use credit cards from a young age. You should buy things on your credit card that you cannot afford, you should only use it for the conveniance that you don’t need to pay that payment off for 55days. Personally I think a smart person should never pay any interest on their credit card.
I totally agree with Phillip here. It is actually what I do too but I think to a larger degree. I have an arrangement with the local bar that I pay every month. Much like a utility bill.. (beer being the most essential utility ;)…
At the end of the month. I just give about 5% of the bill and it is usually quite a sum. The waiters get shocked by the amount and treat me better but in actual fact I’m being cheap. Works out great…
HI….I agree with some of them and disagree with some comments beacause we know evrey thing then again we made a mistakes there are some good suggestions for everyone and they can use these suggestions for their better lifestyle .People needs to pay extra money for their shopping and some bills to use their credit cards . If we will use our credit cards on dates then we know what we are earning? think about it there are so many things to do i think.
Great tips, only use credit cards for emergencies and pay them off. Unfortunately in our world today, credit cards are a necessity pretty much when traveling. Ever try to rent a car without one? It’ll cost you $300-$500 more.
Some great advice, I have seen so many people go for a night on the town and then regret the bill a month later. I think that’s one of the greatest tips for students I have ever heard.
Matt
That’s my problem 🙂 So many times I was exhausted by the bill after too crazy parties!
Credit cards have many great uses as long as you understand the terms of the bank, and use them wisely.
I personally shop without them, leaving them home until I’ve found a high priced item that I might be shopping for.
This prevents “impulse” buying and keeps you from spending unnecessarily. We all know how easy it is to just say “charge it”!
My son who is now in college, receives credit card offers that seem to never end. I’ve told him to take careful consideration to any bank and their terms that he may be considering.
College students seem to be a popular target for these companies.
If you’re spending all over the place with your credit card, then your budget is really going to suffer. Think about all your expenses beforehand. This article really helped me with tips about budgeting.
http://www.gobankingrates.com/savings-account/what-to-do-if-your-budget-doesnt-balance/
don’t buy consumable goods on credit… gas, food, that sort of thing… because when the goods are gone, you could still be paying on them for months or years. bad idea.
I use my debit card for everything. I thought about getting a credit card, that just one more thing I have to keep track of.i will follow your tips whenever i will use my credit card..
thanks
best regards..
$arah..
i would like to add:-
Gas Stations and Hotels
This one depends on the individual business. Some gas stations and hotels will place holds to cover customers who may leave without settling the entire bill. That means that even though you only bought $10 in gas, you could have a temporary bank hold for $50 to $100, says Tiffany.
Ditto hotels, where there are sometimes holds or deposits in the hundreds to make sure you don’t run up a long distance bill, empty the mini bar or trash the room. The practice is almost unnoticeable if you’re using credit, but can be problematic if you’re using a debit card and have just enough in the account to cover what you need.
thanks
best regards
jiya..
Just to clarify, jyia, you’re talking about situations where you shouldn’t use a debit card, correct?
The trouble is, for some the temptation is just too great. Most people’s lifestyle expands or contracts according to their perception of what they can afford. Having that card makes them feel that they have more money, because there is “unspent money” on the card. The main thing you have to remember is that credit cards are not “free money”, they can be very expensive money.
Thanks for the tips. I’m thinking of leaving credit card even at home. I have a bad self-control. 🙁
I would add that you shouldn’t pay in supermarket with a credit card, ’cause every time I receive bills, it’s just awful how much money I’m spending on food!
LOL at #4. “Don’t Start a Marriage on Credit”. Haha so true
One of the best things to do is not have a credit card at all. but in this day and age most business no matter what it is operates with a card of some form.
Generally it should be ok to use credit to pay for anything so long as you are able to pay it back by the end of the month. Whether you use credit cards to pay for a holiday or food shopping it should be ok but if you are using a credit card to pay for necessaries then it could be a bad sign.
A credit card out on a night on the town? I think we’ve all probably done this once in our lives. At least if you’re on a credit card program that offers a reward program, you’re not just looking at a stinking bill, but maybe got a free teddy or ipod for your carelessness!!