Credit cards are a wonderfully convenient part of modern life. They offer fraud protection, can help build a positive credit history, and many come with attractive rewards like cashback or travel points. Many of us have used them responsibly for years, enjoying these benefits.
However, this convenience can sometimes lead us into making credit card mistakes if we’re not careful about what we charge.
While it’s tempting to swipe that plastic for nearly everything, some purchases are simply not well-suited for credit, especially if you’re unable to pay off the balance in full each month.
The high interest rates that credit cards can carry can quickly turn a manageable expense into a burdensome debt. Our goal here isn’t to discourage credit card use, but to offer some friendly finance tips to help you avoid common pitfalls and steer clear of bad spending habits.
Empowering ourselves with knowledge helps us make the best decisions for our financial well-being.
Let’s explore ten types of expenses that you should think twice about before putting them on your credit card.
1. Your Monthly Mortgage or Rent Payment (If Fees Apply)
Paying your largest monthly expense, like your mortgage or rent, with a credit card might seem like an easy way to earn rewards. However, most landlords and mortgage lenders don’t accept credit cards directly. Those that do often use third-party payment services that charge a hefty convenience fee, typically 2-3% of the transaction amount.
Why it’s usually a mistake: That convenience fee can easily wipe out any rewards you might earn. For example, a 3% fee on a $1,500 rent payment is $45. If your card offers 1.5% cashback, you’d only earn $22.50, leaving you $22.50 out of pocket.
More importantly, if you can’t pay off that large charge immediately, the interest accruing on your credit card (which often has a much higher Annual Percentage Rate or APR than your mortgage) will quickly make this a very expensive way to pay your housing costs.
A better approach: Pay your mortgage or rent directly from your bank account via check, online bill pay, or automatic withdrawal. This avoids fees and the risk of high-interest credit card debt. If earning rewards is a priority, focus on using your credit card for other expenses you can pay off monthly.
2. Significant Medical Bills (Without a Repayment Plan)
Unexpected medical expenses can arise at any stage of life, and they can sometimes be quite substantial. It can be tempting to put a large hospital bill or a series of doctor’s co-pays on a credit card to deal with them quickly and get the provider paid.
Why it’s usually a mistake: Medical bills, while stressful, often come with more flexible repayment options than credit card debt. If you charge a large medical bill to your credit card and can’t pay it off quickly, you could be facing interest rates of 15%, 20%, or even higher. This can add hundreds or thousands of dollars to the original bill over time.
A better approach: Before reaching for your credit card, talk to the hospital’s or clinic’s billing department. Many offer interest-free payment plans or will negotiate a payment schedule you can manage. They may also have financial assistance programs or be able to direct you to charitable resources.
Using a Health Savings Account (HSA) if you have one is also a great option for qualified medical expenses. Reserve credit cards as a last resort for medical costs.
3. Paying Your Taxes (If You Incur Fees and Can’t Pay Immediately)
The IRS and most state tax authorities allow you to pay your income taxes with a credit card through third-party payment processors. This might seem convenient, especially if you owe a large sum and want to earn rewards.
Why it’s usually a mistake: These payment processors charge a convenience fee, typically around 2% of the amount paid. If you’re paying a $3,000 tax bill, that’s a $60 fee. If your rewards don’t outweigh this fee, you’re losing money.
Furthermore, if you can’t pay off the credit card balance immediately, the interest you’ll accrue will far exceed any rewards earned and can be much higher than the interest and penalties the IRS might charge on an installment plan.
A better approach: The most cost-effective way to pay your taxes is directly from your bank account (IRS Direct Pay is free). If you can’t pay the full amount owed by the deadline, explore options with the IRS, such as a short-term payment plan (up to 180 days, fees and interest apply but may be lower than credit card rates) or an Offer in Compromise if you’re facing significant financial hardship. This is generally a more manageable way to handle tax debt than high-interest credit card debt.
4. College Tuition or Large Educational Costs for Family
Many of us take great pride in helping our children or grandchildren with their education. When tuition bills come due, it might be tempting to charge them to a credit card, especially if you’re chasing rewards or need a bit more time to gather the funds.
Why it’s usually a mistake: Like taxes and rent, most educational institutions charge a convenience fee (often 2-3%) for credit card payments. On a multi-thousand dollar tuition bill, this fee can be substantial.
More importantly, financing education with high-interest credit cards is one of the most expensive ways to do it. The long-term interest costs can significantly inflate the overall cost of education.
A better approach: Explore federal student loans first (for students), as they often have lower, fixed interest rates and more borrower protections. Look into payment plans offered directly by the college or university, which are often interest-free or have very low interest.
Scholarships, grants, and 529 savings plans are also key resources. If you are helping family, contributing cash you have saved is far better than taking on high-interest credit card debt on their behalf.
5. A Down Payment on a Home or Car
Saving up for a down payment on a major purchase like a home or a car takes discipline and time. It might seem like a shortcut to put part of that down payment on a credit card to reach your goal faster or to get a nicer car or home.
Why it’s usually a mistake: Most mortgage lenders will not allow you to use a credit card for any portion of your down payment, as it’s essentially borrowing money for a down payment, which defeats its purpose of reducing the lender’s risk.
Car dealerships might allow it, but they may cap the amount or pass on processing fees. Even if allowed, you’re starting a major loan with additional high-interest debt, which is a risky financial move and can make your overall monthly payments unmanageable.
A better approach: The best way to handle a down payment is the old-fashioned way: save up cash in a dedicated savings account. This demonstrates financial responsibility to lenders and ensures you’re not starting a new loan already burdened by high-interest credit card debt.
6. Gambling, Lottery Tickets, or Risky Investments
The allure of a big win can be strong, whether it’s at a casino, buying lottery tickets, or even dabbling in speculative investments like cryptocurrency. Using a credit card to fund these activities can feel like using “house money.”
Why it’s usually a mistake: Credit card companies often treat gambling transactions (including lottery tickets and funding online betting accounts) as cash advances. This means they come with high upfront fees and start accruing interest immediately at a very high APR.
Beyond the fees, borrowing money for gambling or highly speculative investments is a recipe for financial trouble. If you lose, you’re still stuck with the debt and the mounting interest. This is a classic example of bad spending habits.
A better approach: If you choose to gamble or make speculative investments, only use cash from your discretionary entertainment budget – money you can genuinely afford to lose without impacting your essential finances. Never borrow money, especially high-interest credit card money, for these activities.
7. Cash Advances (Except in Dire, True Emergencies)
Most credit cards allow you to withdraw cash from an ATM, much like a debit card. This is known as a cash advance. It might seem like an easy way to get cash when you’re in a bind.
Why it’s usually a mistake: Cash advances are one of the most expensive ways to use your credit card. They typically come with:
- An upfront fee: Often 3% to 5% of the amount withdrawn.
- A higher APR: The interest rate for cash advances is usually significantly higher than your regular purchase APR.
- No grace period: Interest starts accruing from the moment you take out the cash.
This combination means a small cash advance can quickly become a very costly debt. Frequent reliance on cash advances can also be a red flag to lenders.
A better approach: Build an emergency fund in a savings account to cover unexpected cash needs. This is the best defense against needing a cash advance. If you face a true, unavoidable emergency and have no other options, a cash advance might be a last resort, but aim to pay it back as quickly as humanly possible.
8. Loans to Friends or Family (If You’re Paying Interest on It)
It’s natural to want to help loved ones when they’re facing financial difficulties. Offering a loan seems like a kind gesture. Some people might consider putting this “loan” on their credit card if they don’t have the cash immediately available.
Why it’s usually a mistake: When you lend money to someone using your credit card, you become responsible for the debt and any interest that accrues.
If your friend or family member is slow to repay you, or can’t repay you at all, you’re left holding the bag – and paying interest on money you no longer have. This can strain both your finances and your relationship. It’s a significant credit card mistake with emotional, as well as financial, costs.
A better approach: If you choose to lend money to friends or family, only lend what you can truly afford to lose and use cash you already have. Have a frank discussion about repayment terms and get them in writing if possible.
If you don’t have the cash on hand, it’s often wiser to offer other forms of support rather than going into debt yourself to lend money.
9. Big-Ticket “Want” Items You Haven’t Saved For
We all have things we’d love to buy – a new state-of-the-art television, a luxury vacation, expensive jewelry, or a new set of golf clubs. Credit cards can make these aspirational purchases instantly attainable.
Why it’s usually a mistake: Charging large, non-essential “want” items that you haven’t saved for means you’ll likely be paying them off for months, or even years, with interest. That $3,000 dream vacation could end up costing you $3,500 or more once interest is factored in.
This habit can lead to a cycle of debt where you’re always paying for past indulgences instead of saving for future goals or needs.
A better approach: For big-ticket discretionary purchases, practice delayed gratification. Create a dedicated savings fund for that item. Saving up and paying cash not only saves you interest but also makes the purchase feel more rewarding.
If a store offers a 0% financing deal and you are disciplined enough to pay it off *before* the promotional period ends, that can be an option, but be wary of deferred interest clauses.
10. Any Purchase You Can’t Pay Off Within the Month
This is perhaps the golden rule of responsible credit card use. While credit cards offer a grace period (typically 21-25 days from your statement closing date) during which no interest is charged on new purchases if you pay your previous balance in full, that benefit disappears if you carry a balance from month to month.
Why it’s usually a mistake: Once you start carrying a balance, interest begins to accrue on your average daily balance, including new purchases from day one. This means you’re paying extra for everything you buy.
Consistently charging more than you can pay off each month is the primary way people fall into credit card debt, which can be stressful and hard to escape. This is a core element of many bad spending habits.
A better approach: Treat your credit card like a convenience tool, not like extra income. Before making a purchase with your credit card, ask yourself: “Can I afford to pay this off when the bill comes?”
If the answer is no, reconsider the purchase or find an alternative way to pay for it, like using debit or cash from your budgeted funds. Sticking to this principle is one of the most powerful finance tips for avoiding debt.
Credit cards are valuable financial instruments when managed with care and foresight. By being mindful of what you charge and always aiming to pay your balance in full, you can harness their benefits without falling victim to the pitfalls of high-interest debt.
We hope these suggestions empower you to continue making wise financial decisions and avoid common credit card mistakes, ensuring your money works for you, not against you.
