Part VIII of the Credit Card Series: Start at the beginning if you missed a part. This is the end of this series.
Credit cards are convenient:
- Track spending.
- Categorize expenses.
- Build credit score.
- Safer than cash
- Online spending
You cannot save money when you are paying interest. Conquering credit card debt is impossible if you are putting day-to-day expenses on your credit card.
What are some of the things you should never put on your credit card and why?
You have this budgeted. It is an expense you must deduct before you know your personal savings. If you put it on your card, you are cheating yourself of two things: (1) The lowest payment for your bill (2) Actual ability to accommodate credit card debt.
Instead, draft the money directly from your checking or savings account. The draft will be inexpensive or free, depending on the handler of your utility’s bill payment website. Debit cards are a good alternative.
Life, health, vehicle and homeowner’s insurances are designed to protect you against loss. In the case of the last three, many people will pay more in premiums than they will ever recover. This is an expense upon which you cannot afford to add interest. Use your debit card or online bank transfer, like PayPal.com.
Medical default is one of the largest categories of collection activity on credit reports. It is far cheaper to choose one of these before pulling out your convenient credit card:
- Negotiate with your care provider for a payment plan befitting your budget.
- Use your debit card or a check for out-of-pocket expenses.
- Obtain a medical loan for large expenses, like outpatient surgery.
- Use your emergency funds.
You are compounding interest by paying interest on the interest from another loan. Remember, a credit card is a loan with a much higher interest rate. Many institutions prohibit paying loan payments with credit cards, but some finance companies still allow it. This is an expense which must come from your bank account.
Amazingly, Americans use credit cards to purchase groceries. Groceries are a staple expense. Putting them on your credit card is courting disaster and a red flag you are living beyond your means.
This is an expense which should be budgeted from your income as a monthly expense. If you have a hard time saving for your taxes, open a tax account with your financial institution. Most banks offer a no-fee account for saving for taxes.
The Only Exception
Most rules have a least one exception, and this is no different. If you are paying your credit card off every month, this rule does not apply to you because you are using your credit card only for its convenience.
Putting these expenses on your credit card is dangerous to your credit health. Ask yourself, “How much debt is too much?” You run the risk of using budgeted money for leisure and consumer expenses you cannot afford. Keep yourself out of debt by parking the card and writing a check.
The credit card poll ends today. Have you voted?
What expense do you never put on your credit card?
(c) Red Dwyer 2011
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