Credit cards can be a great friend or a terrible enemy depending on how you use them. If you use them wisely, which means paying off your balances each month, they’re like free money or money you can use for almost 30 days at no cost. But if you don’t use them sensibly, you could end up trapped in a terrible cycle of debt. One way to avoid this is to not put any of the following five things on a credit card.
Taxes
If you’re facing a large tax bill, it’s very tempting to just put it on a credit card. The IRS even makes it simple for you to do this. But the payment processors will charge you anywhere from 1.88% to 2.35% and then you’ll have to pay the interest charge on your credit card, which could be as high as 18%. In comparison, the IRS allows taxpayers to set up a monthly payment plan that has a much more competitive interest rate. Its underpayment interest rate varies but is currently at 3%, which is far better than the interest you would pay on any credit card.
College tuition
This is also something to never put on a credit card. People who do so usually learn how difficult it is to pay off credit card charges, especially when those charges start to compound. A much better solution would be to fund that college education with low-interest student loans, grants and part-time jobs.
A big wedding
You might like to have a big, lavish wedding but if you can’t really afford it don’t put it on a credit card. This could be a horrible mistake as the two could end up starting a life together buried under a huge pile of debt.
Medical bills
I know that health care costs these days can be absolutely staggering. I recently had a minor procedure that cost $5000 and my share was more than $600. But using credit cards to pay off medical bills can be a very bad idea – again because of their high interest charges. If you’re hit with a big medical bill, it’s usually possible to negotiate with your healthcare provider to have it reduced or to get a payment plan. Many hospitals, clinics and even doctors will reduce their bills by hundreds or even thousands of dollars if you can pay cash.
A lavish vacation
Life can be very difficult these days and a luxury cruise or a 10-day Caribbean vacation may seem like a heaven sent way to reduce stress. But if you finance that dream vacation with a credit card, you’re likely to just end up creating more stress for yourself. There are ways to get a nice getaway without spending a huge amount of money, such as camping, staying at a hostel or visiting family and friends. Alternately, you might stay home for a few years, save the money, and then treat yourself to that dream vacation.
Debt never takes time off
The biggest problem with putting these five things on a credit card is that they create debt that never goes away – assuming you don’t choose to file for bankruptcy. Otherwise, you will have to find some way to pay it off, which could take five, seven or even more years. There is an old tune that includes the refrain, “the song has ended but the melody lingers on.” In the case of putting these things on a credit card, the song may have ended but the debt will linger on.
