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Personal finance gurus love credit cards. Provided you pay them off every month, they’re an almost guaranteed boon to most consumers thanks to their generous perks and rewards. But no matter how magical they may seem — it’s also worth mentioning that they have a dark side — there are just some purchases that you should never put on plastic.
Editor's note: This story was updated in July 2024
It seems like a way to afford travel to far-off destinations, but you have to come back home sometime — and your debt will likely be waiting for you. While many credit cards offer miles or chip into your vacation expenses, only buy what you can pay off at the end of the month, rewards or not.
“Don't put (medical bills) on any kind of card that will then be charging you interest, because that's going to make the problem worse,” said Ruth Lande, the vice president of hospital relations at the nonprofit Undue Medical Debt. Despite experts’ advice, Kaiser Health News reports that 1 in 6 Americans are paying off medical or dental debt they put on a credit card.
Tying the knot isn't cheap. Though not as much as pre-Covid, the 2022 average wedding cost around $30,000. Unless a relative is shelling out for your big day, consider scaling back. It is, after all, just a (very pricey) party, and should be budgeted as such. Just remember, you don't want to be paying off the wedding when your first anniversary comes around.
There's the temptation to bet it all on black, but resist if you can. It's easier than ever to gamble with credit cards (bye, penny slots) but gambling transactions are often charged as cash advances, so you'll be charged a fee plus a higher interest rate.
If you’re paying for a down payment with a credit card, then you shouldn’t be making the purchase — plain and simple. The only exception is if you’re paying for a down payment on a car and you’re 100% certain you can pay the bill before it accrues interest. And even then, it’s a risky move that the dealer likely won’t jive with.
The Internal Revenue Service (IRS) charges a service fee on all credit card transactions, ranging from 1.82% to 1.98%. While that may not sound like a lot, it’s far cheaper to just pay with a debit card (around $2 per transaction). If you can’t afford to pay Uncle Sam in one go, consider applying for an IRS payment plan.
If you’re in college, chances are you’re in debt. But don’t worsen your situation by putting college tuition on a credit card. Instead, apply for financial aid or try to take out a student loan, which will have a lower interest rate.
Credit card companies have made it easier than ever to overspend. Without having to count cash, check your balance, or enter a pin, you can easily spend $10,000 in seconds. And if that’s $10,000 that you don’t have, then you’re screwed. Instead, only charge what you can afford, and pay your credit card bill in full every month.
Everyone from financial experts to the Securities and Exchange Commission cautions against investing with a credit card. If you lose the money on the market and can’t pay it back, you’ll be stuck with high-interest debt. Plus, most investment firms won’t even let you buy stocks and bonds with a credit card, and those that do might be looking to scam you.
If you want to guarantee financial ruin, then try to put your mortgage payment on a credit card. You’ll be paying for not one but two types of interest. Suffice to say: you’ve got better options. The Consumer Finance Protection Bureau (CFPB) recommends calling your mortgage servicer to work something out and contacting the Department of Housing and Urban Development (HUD). And we have similar advice for renters. Contact assistance programs, and as a last resort, consider taking out a loan.
A cash advance — a short-term loan offered by your credit card company — is almost always a bad idea because the fees are high (around 3% to 5%) and the interest rates are astronomical (as high as 36%). If you can swing it, a personal loan will offer far favorable terms.
Since businesses take a while to be profitable, you shouldn’t rely on high-interest credit card debt to finance your venture. Rather, it’s better to go through more conventional channels and get a small business loan or crowdfund your operation.
While some credit card companies will let you buy cryptocurrency, your purchase will likely be subject to considerable fees. For example, some companies treat cryptocurrency purchases like cash advances. And for the same reason you don’t want to invest with a credit card — you shouldn’t gamble with money you don’t have — you should also avoid crypto.
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