Credit Cards

The Things You Should Never Pay for With a Credit Card

Find out what things you should absolutely never charge to your credit card. These items will result in heavy fees and potentially jeopardize your finances.

Many consumers feel as though they should charge everything to their credit cards. Between all the different financing options they offer and their reward programs, paying with cash may seem like a bad deal. People will often also look for every little excuse to try and meet their new card’s spending requirements to hit a bonus, or try and squeeze out a few extra miles for their next vacation. However, this mindset can lead people to make bad financial decisions that can prfove costly. There are certain things people should never charge to their credit cards. These things come involved with significant financial risk and can end up costing consumers a lot of money in needless fees and charges.

Lottery tickets & casino gambling chips

These purchases can be categorized as a cash advance by the bank, instead of a regular transaction. This is the equivalent of using your credit card to take out money from an ATM, and it can come with some hefty fees. Cash advances typically charge the highest interest out of all credit card transactions. While a standard credit card can have a purchase APR of around 17%, it’s not uncommon for cash advances to charge users 25% or even 29%. If that wasn’t bad enough, cash advances come with an origination fee as well. You can be charged anywhere between 3% and 5% of the total amount. Finally, unlike regular purchases, cash advances don’t have any grace period on their interest charges. That means the extremely high APR will begin mounting on your bill from the moment you buy those lottery tickets. At the end of the day, all these extra charges will eat away into whatever you may end up winning through this purchase. Worst yet, if you don't win you will end up being down more than you would have had you paid in cash.

Taxes

The IRS gives you the option to pay your taxes using a credit card or debit card. However, doing this comes with some fees you could avoid by choosing the pay using some other form of payment, like a check. Debit cards are the least expensive, charging users a flat fee around $2.59. Those who want to pay with a credit card will be charged a percentage of their total payment. The IRS-approved processors vary from 1.87% to 2.25% for those who opt for a credit card payment. Most people are unhappy paying their taxes, so you should avoid having to pay even more on top of them.

Student loans

Paying for your student loans with a credit card may seem like a good temporary solution, but it should be avoided at all cost. You are already paying interest on the loans in the first place. When you charge the loan to a credit card you are adding on additional interest charges. Most federal direct student loans come with interest rates between 4.6% and 7.2%, which is already quite high. Credit cards have APR that is, most of the time, at least twice as high. All you do is buy yourself some extra time, and that time is going to end up costing you a lot of money in needless charges.

Anything you can’t pay off at the end of the month

While the above list was mostly composed of concrete things, this last one is a lot broader. However, this doesn’t make it any less important. No one should charge things to a credit card that they can’t afford to pay off at the end of the month. It’s a smart financial move to take this one step further, and avoid charging purchases with the slightest chance of pushing you over budget. Why? Credit card debt is a vicious cycle. The moment you start carrying a balance month-to-month, and interest charges begin to mount on your bill, it can become very difficult to deal with them. This is especially true if some sort of financial emergency were to comes up. An unexpected emergency room visit or a vehicle breaking down can put a strain on your budget. Consumers face the greatest risk when they get into the habit of making just the minimum payments on their credit card bill. It would take the average indebted American 27 years to completely pay off a balance with just minimum payments and an APR of 15%.

Joe Resendiz

Joe Resendiz is a former investment banking analyst for Goldman Sachs, where he covered public sector and infrastructure financing. During his time on Wall Street, Joe worked closely with the debt capital markets team, which allowed him to gain unique insights into the credit market. Joe is currently a research analyst who covers credit cards and the payments industry. He earned a bachelor’s degree from the University of Texas at Austin, where he majored in finance.

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Example of how we calculate the rewards rates: When redeemed for travel through Ultimate Rewards, Chase Sapphire Preferred points are worth $0.0125 each. The card awards 2 points on travel and dining and 1 point on everything else. Therefore, we say the card has a 2.5% rewards rate on dining and travel (2 x $0.0125) and a 1.25% rewards rate on everything else (1 x $0.0125).