You can use your credit cards for many purchases you make. Charging stuff on your cards means you get to take advantage of cardholder perks, which could include travel insurance or extended warranties. You also get to earn rewards for your spending if you have a good rewards card.
While you’ll want to use your cards often, there are some things you should absolutely never charge on a credit card. Here are four of them, along with some details about why charging each one could be bad news.
1. Investments
Investing is good, but it’s not good to do it with borrowed money. Even relatively safe investments come with the risk of loss. If you charge $1,000 on a card, invest that money, and lose $500, you still have to pay back the full $1,000 plus any interest charges you incur. You don’t want to put borrowed money on the line.
Credit cards also charge high interest rates (the average rate is 21.19%, according to the Federal Reserve Bank of St. Louis). It is very unlikely that you’re going to earn returns anywhere close to that amount with any reasonable investment. So you’d never ever want to pay interest on your card just to get extra money to invest.
2. Medical bills
Putting medical bills on a credit card usually doesn’t make sense. Medical debt is treated differently from other unpaid debts, with new unpaid medical debts under $500 not appearing on credit reports and old unpaid debts not appearing if the initial balance was below that threshold. Even debts with higher balances can’t show up until there’s at least a 365 day waiting period. There’s no such protection for credit card debt you don’t pay.
Personal loans and payment plans from providers may also offer a lower-cost way to borrow for medical care than using your cards. There’s no sense in charging what you owe on your cards and getting stuck with high interest when there are more affordable options available in many cases.
3. Cash-like transactions
Some transactions, called cash-like transactions, come with high fees and a higher interest rate because they are treated like cash advances. You also may be ineligible to earn rewards on cash-like transactions.
Examples of cash-like transactions can include:
- Buying cryptocurrency
- Gambling or taking part in online gaming
- Making a wire transfer
- Buying foreign currency
- Purchasing a money order
You’ll want to avoid doing anything your card issuer defines as a cash-like transaction, as cash fees are typically 3% to 4% of the amount, and the APR for cash advances is usually higher than the standard card APR, often hovering around 29.99%. You can check your card’s terms and conditions, or just ask your card issuer if you aren’t sure.
4. Purchases you can’t possibly afford
Finally, you should avoid purchasing anything you can’t really afford. A credit card is not a good way to finance big purchases that are out of your price range, due to the high rates.
And while it may seem affordable to charge things and make a low minimum payment, the fact is you could be trapped in debt for decades and find yourself paying tens of thousands in interest charges. Even a $1,000 credit card balance on a card charging 21.19% with a 2% minimum payment could take 245 months to repay and leave you paying $3,973.76 in total.
Unless you can pay off your card when the statement comes, don’t use it to buy something that isn’t within your budget.
By avoiding charging these four items, you’ll have an easier time staying out of credit card debt so you don’t find yourself drowning financially and unable to accomplish the goals that matter most.
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