Credit cards shouldn’t scare you; when used correctly, they’re actually the most rewarding form of currency available today.
Seriously, when’s the last time you were rewarded with airline miles for using cash?
And while it’s highly recommended that everyone should apply for a credit card as early as possible to begin the process of building credit, there are a few things you should simply not charge to your card. Generally, these are big-ticket items that might take you a long time to pay back. And when it takes you a while to pay back a credit card purchase, eventually you end up paying interest. A lot of it.
The single easiest way to fall into credit card debt is to make a big-ticket purchase and spend the next several months paying it back in very small increments. That’s what they call the “Snowball Effect” — wherein you make minimum payments, half of which go to interest — and it’s a legitimate credit killer.
Now you can try limiting your plastic debt by trying gimmicks like researching the top credit cards for consultants – but the real trick to staying out of credit card debt is to make small, semi-regular purchases and pay the entire balance every month.
With that in mind, here are three things you should avoid paying for with your credit card … and as a bonus, one purchase we always recommend using a credit card for.
Hospital Bills
Never put your hospital bills on a credit card. Medical bills are expensive as it is; the last thing you want to do is add high interest fees to those bills, too.
The fact of the matter is you can get on a payment plan with lower interest rates if you need to pay back your medical bills over time. Credit card interest rates range anywhere from 10% to 30%; you can get a much better rate through a payment plan initiated through the hospital. So take the time to sort this option out before sticking it all on your credit card.
Student Expenses
Student debt is brutal, but the fact of the matter is student loan interest rates are, by and large, a lot lower than the average credit card interest rate. So it’s highly recommended that you don’t charge off some or all of that student loan payment since, ultimately, you’ll end up paying a lot more in the long run.
Along those same lines, it’s not recommended to charge your tuition bills. It’s much cheaper (OK, maybe “cheaper” is the wrong word here — how about “less expensive”?) to take out a student loan or apply for a scholarship than it is to simply swipe your way through school.
Think about it: The average yearly cost to attend a public university is now more than $22,250. Add 15% in interest to that and that’s another $3300 — in interest alone. So keep the big-ticket items — especially the ones with lower interest options — off your charge card.
Your Dream Wedding
Unless you’ve got a feeling your wedding gift-pile will be something akin to Henry Hill’s in Goodfellas (i.e. a pile of envelopes stuffed with cash), then it’s probably a good idea to scale back that dream wedding you had in mind to something more manageable.
I’m not married and I’m certainly not a relationship counselor, but it can’t be a good idea to begin your first days of marriage swamped in debt because you decided to fly in your entire extended family for a destination wedding.
Getting hitched is a celebration of love, not luxury. Stay within your means when planning your wedding and you’ll be more likely to enjoy your party.
That said, if you need to go into debt to fund the open bar, then we’ll make an exception. (Just kidding. Kinda of.)
So, while we recommend putting the plastic away for the above purchases, there’s still one huge category of items we always recommend using your credit card for:
Online Purchases!
Why? Well, the dirty secret your bank doesn’t want you to know is that most credit card issuers offer better identity theft protection than that of the biggest banks. Not only that, but in the event that your credit card account is hacked, the damage will usually be limited because your credit card accounts aren’t synced with your personal bank accounts, savings accounts, etc.
Besides, the only credit card networks worth applying to have purchase protection, so you’re covered in the event of fraudulent charges. Not so with your debit card…
By using your debit card online often, you’re increasing the chance of foul play.
So you see, credit card purchases are actually recommended in some cases — especially if your card offers you cash back, rewards or miles.
Just be sure to keep the most expensive purchases — the ones that no matter how you slice it are simply out of your reach — off your charge card. By doing so, you’ll save yourself the burden of interest fees and debt for years to come.
Photo Credit: bfishadow
Very thought provoking. I a in “no credit card mode”, but I have used debit for online purchases…to know that it’s more risky gives me pause. Thanks for the post!
I would disagree with #2 in certain instances. I am taking classes towards an MS degree and my employer reimburses me after the term. I used to pay upfront and use the money to pay for the next course – but right now there are VERY good offers out for balance transfers (0% interest – 0% cost). I pay with one credit card transfer the balance at no cost and pay it off when I get reimbursed (I do have to make the minimum payments). I even even get the credit card bonus for the first charge. That said, the card I transfer the balance to, does not have any other charges (I think those would accrue interest) and other than this I never carry a balance. It works well and I hope I finish before these credit card terms end (1 more class after the one I am taking now).
I don’t mind credit cards so long as you pay off the debt you have accrued before it starts to attract interest.
I fundamentally agree with you on why you shouldn’t make those three types of purchases on credit. But only if you intend on financing them. If you objective is to pay them off hten why not take advantage of the cash back or points and then either pay it off or fund a payoff via another, more economical method?
Jose – you definitely have a point. If you’re going to pay back your big-ticket purchases in full right away, then it’s absolutely worth it. But the fact of the matter is that many consumers either a.) use cards for financing or b.) SAY they’re going to pay back their purchase right away but don’t actually follow through. So yes, both our arguments are solid in theory – just depends who’s using the charge card.
In the UK you also get protection for high street items, so you should charge them on the card as well.
Definitely don’t put your wedding on a credit card if you can’t afford it! I agree.
I would add a fourth item you should always charge with a credit card and that is airline tickets. I got ripped off by a travel agent once and went through a very lenghty legal process to get my money back. If I had of used a credit card, they would have just cancelled the charge.
I went against this and just put my medical expenses on a credit card. They only reason I did this was because I have 18 months of 0% interest. I plan on paying it all off in 3 months. I didn’t want to have interest at all and the hospital didn’t want to give me 0%!
If my card did not have 0%, then I wouldn’t have done it.
A number of years ago (when I had the cash) I paid for a car using my credit card just to get the frequent flyer points. Then 2 weeks later I paid it off with the cash in my account.
I’m surprised Jason left call girls and drugs off the list. 😉
Or is that too obvious?
They started adding a 3% transaction fee. 😉
We hardly carry cash with us and everything goes on credit cards. The rewards we have gotten from using our cards, well like you said cash can’t give you. We’ve never paid a lick of interest in our life so it’s worth it for us.
With cashback/reward cards, if you intend on paying off the balance fairly quickly, putting things such as medical/college expenses could actually benefit you. I think you need to think carefully about how long the debt is likely to remain on the card rather than just outright decide that these items will never be paid for on a card.
Great point, Ed. I agree. If you are going to pay off the card balance in full at the end of the month, then there is really no harm/no foul. And if it is a rewards card, you get to enjoy the bonus.
Agreed with all of that. Credit cards, when used correctly, are the most rewarding form of currency available. (Other than gold, maybe? Is that currency?) But the fact of the matter is many consumers just don’t have the discipline to pay in full right away, and the result is serious, snowballing interest. (Average credit card debt currently is a little over $5k for the average American.) I’d say if there’s ever a doubt you’ll be able to pay these purchases off quickly, it’s best to set aside the charge card. That’s just me though.
It depends how you repay your credit card debt. Many folks use credit cards but have never had plans how they will repay the debt. Most Americans who have trouble repaying credit card debt fall into this category. They are quick to borrow but extremely slow to repay.
I use credit cards (a) to smooth cash flow when I would pay it off every month, (b) as a short term loan if they are offering 0% (maybe a balance transfer from another card) (c) for travel because we have one card that has proper travel insurance built in and (d) for big ticket items (which I would pay off) exactly because there is legislation here that if the product becomes faulty or doesn’t arrive and it is more that £100 and less than £30,000, the bank shares the risk. I once ordered a computer for over £1000 but the supplier went bust. I got the money back from the bank. I guess that isn’t available in the US.
Jason, all good points. I would add that charging vacation packages to your credit card can be a good idea (if you can afford to pay in full) because there are many scams out there. I paid for a one month condo rental with my credit card and it gave me peace of mind knowing I had the backing of the card.
We actually put most of our wedding on a credit card at 0% for 21 months. I then divided the total by 20 months and set up an ING Direct sub account with direct deposit specifically for this card. Just finished paying it off. I normally pay my credit card balance in full every month unless I am taking advantage of a 0% offer.
Jason, if I have the cash, why not charge those things, and pay the bill in full as we always do?
We’ve always paid in full, else we wouldn’t buy whatever it was. When we bought our cars, I was disappointed I couldn’t charge the full amount, only the deposit, $3,000 if I recall.
Len – I’m with you, when I caught the title, I was imagining a cartoon I’d seen years ago, a father giving a son advice, “always pay cash for two things…..”
we only use 1 credit card for anything online. that way, if anything bad ever happens, we just cancel and get a new one. i like your point on debit card online.
i like to use a credit card to keep track of all monthly purchases – they list it out for you – nice.
I have used reward credit cards for over 30 years. I always pay my balance to avoid any interest. I would not be afraid to say I have probably earned over $10,000 rewards in that time. I just cashed in a $500 reward to splurge on C’mas gifts! It is like literally picking up free money off the sidewalk!
Further, I too have had the need on 3 occasions to have the card stand behind me in poor business transaction disputes! It is great knowing they have your back! I got my money back in all cases, even though 2 merchants fought hard not to.
I have seen people go into debt with cards. I have a friend who has repeatedly done so. They are in bankruptcy for the 2nd time now and will loose their home this time. It is ridiculous to me that some people think a CC is a money tree!I have never treated them as such. And if I can’t pay it at months end I don’t buy it! It’s a mindset of some people and the opposite with others. I cannot imagine using them any other way. It is nice to have the knowledge if the unexpected need arises I could use them though. My aforementioned friend has no where to turn if something breaks down or a real need arises. I could not sleep if I were in that circumstance.
Someone mentioned the “no pain” paying with plastic vs the “pain” thus the restraint of paying with cash. Not so for me! I KNOW the bill is coming at the end of the month, and I see the cash then, as I deposit it into my account for payment. Perhaps that is why so many do fall into the trap of minimum payments. There is that not wanting to let go of your cash, and with the minimum payment amount looking so enticingly low…yes I can see how that happens, but only an imbecile would fall into that trap. As you must know the interest will eat you alive.
One more point I would like to make on the intelligent use if cards is the great credit score you build up with consistent use and payment. I just checked my score and it is 780. That is a real benefit in today’s world effecting everything from your insurance rates to your job prospects. So many agencies look at your score to determine a lot about your responsibility and character. Places that are not involved in money lending at all. Using cash doesn’t get you a great credit score.
Esta muy interesante y bien explicado!
Gracias, Miguel!
I love it when people come together and share ideas. Great website, Len! Stick with it!
Great tip about hospital payment plans. Hadn’t thought about that before.
Great post! And a great blog too, Len!
I don’t like to use credit cards for medical bills for the reason you cite. A very large bill will take time to pay off, and it will cost you in interest charges. You will have to be very firm in dealing with the billing department if you can’t pay the bill in full immediately. They’ll do everything they can to get you to put the bill on your credit card. If you have trouble with the amount, hospitals and doctors often will reduce the bill, but that’s out if you charged it all. Also, if you have problems paying a medical bill, that is supposed to be treated differently for purposes of your credit report, I have read, than credit card debt. I just flatly say no, I don’t pay my bills with credit cards. Be prepared for some sour looks.
In addition, think whether you want your doctor’s name, or the practice name, in your credit records. Fine if it’s a dentist, but do you want people at some bank somewhere knowing the serious health problems you have? There is very little privacy anymore, and banks and credit card companies might not keep your business private. In this age of interlocking companies and also computer hacking, it might not be a good thing for your creditors to know what illnesses you have.
Len: I’m really impressed together with your writing abilities as well as with the other great content here! Thank you so much!!
You’re very welcome, Marge.
Len, you are by far the best personal finance blogger on the web. Your writing style is entertaining and yet very informative. Keep up the great work!
Thanks, Steven. I appreciate the kind words.
Very wise about those three things to not put on a credit card. I pinch pennies to save money for those expenses. If I can’t pay it off in full at the end of the month, I don’t charge it.
I knew a woman who owned over $1 million in real estate. She kept doing the zero interest balance transfer on her cards. She went to get a loan at a local bank, and they turned her down. When she asked why, they told her that all those zero balance transfers dinged her credit rating. What she thought was wise, turned her into what they considered a bad credit risk.
I have two rewards cards. One issues you rewards certificates that I use to buy highly discounted food, clothes, and gifts at their stores and websites. The other issues rewards bucks off the purchase of a new vehicle. I had to replace my vehicle in 2014. After all the offers, and best negotiated price, I pulled out my rewards card. They called, and had to deduct an additional $2400 off the price.
I’m with you, Bill. If I can’t pay it off at the end of the month, I don’t put it on the card!
I agree that large purchases are a bad idea considering the interest rate of credit cards, but if you’re able to pay outright for a large purchase, paying with a credit card and immediately paying off the balance is beneficial for reward cards and the free extended warranty feature of some cards.
I’ve gotten computers and appliances repaired or replaced with the free extended warranty feature of some credit cards.