Credit cards are great tools that help optimize your purchases with rewards and cashback offers. But certain expenses can come back to haunt you if put them on a credit card instead of paying with cash.
If you’ve gotten into trouble managing your credit cards, use this debt paydown calculator to create a path toward becoming debt-free. Avoid putting these five expenses on credit cards to prevent yourself from going further into debt and collecting extra fees and interest.
Many landlords and mortgage lenders are now making it possible to pay your monthly rent or mortgage payment electronically via credit cards. While it may seem convenient, the credit card processing fees can add up quickly and affect your budget. Typically, these processing fees are only around 3%, but when you’re trying to be budget-conscious, that 3% can shave off much-needed money from your bank account. In addition, mortgages have some of the lowest interest rates available. If you pay your mortgage with your credit card and you’re unable to pay off the credit card balance at the end of the month, chances are you’ll pay exponentially more in interest, and thus, increase the cost of your home.
Putting big-ticket purchases on your credit card may seem like a great idea but should only be done if you’re disciplined with credit. Not only will expensive purchases raise your credit utilization ratio and lower your credit score, but if you’re not able to pay them off quickly, then the accruing interest can make those big-ticket items even more expensive.
Like rent and mortgage payments, paying your taxes electronically with a credit card is convenient but comes with costly processing fees. If you’re not able to pay off your tax balance in full with cash, consider setting up a payment plan with your local property tax office or the IRS. The interest rate on your payment plan will typically be less expensive than the processing costs charged for using a credit card.
Like mortgages, most student loans have interest rates that are much lower than the market rate charged by credit card companies. By putting your loan payments on credit cards, you’ll not only be hit with additional processing fees, but the interest charged on your credit card balances will only add to the total cost of your student loan debt.
Unfortunately, many see available credit as an extension of their income instead of the temporary loan it is. You might think that small impulse purchases won’t affect your budget, but those little purchases add up quickly and can be difficult to pay off. If your impulse spending habits lead to credit card balances you can’t pay off every month, then you’ll end up paying interest on the total balance, raising the overall cost of everything you’ve bought.
Credit cards can be great tools to help you earn rewards, but they also come with high interest rates and fees that can get you into debt quickly. Prevent yourself from paying extra processing fees and interest by sticking to cash for these five expenses.
