With consumer spending way down, banks and retailers are looking for ways to encourage you to buy (and finance) whenever possible. Credit cards have some useful purposes, but they’re not a great option for certain purchases. Here are a few things you should avoid buying on credit.
There’s virtually never a reason to put your college tuition on a credit card. Between Pell grants and federally-guaranteed student loans, you can almost always find a better way to finance. Student debts usually don’t get paid off in a month or two—so financing that on a credit card with 23% interest can be enough to sink you for a long time. Most students qualify for a Pell grant, and almost all students can obtain low-interest student loans (between 3-6% APR), so do yourself a favor and submit a FAFSA to pay for your education.
Your relaxing getaway will be wasted if you have to come home to the stress of a crushing credit card balance. Funding your vacation on credit will encourage more wasteful spending, especially if you choose a place with lots expensive extras like a resort town or theme park. Do the hard work of saving up for your vacation, and pay cash. Knowing you have to pay up front, you’ll be able to stick to more modest trips that can be just as relaxing—and being able to come home to a clean financial slate will be worth the wait.
3. Medical Bills
Hospitals and clinics will gladly let you pay with a credit card, and leave you to dig yourself out from under the debt—but if you don’t have a way to pay up front, most providers will set you up with a payment plan, featuring a much lower interest rate than your cards, and occasionally even a healthy discount on your principal. Some of these arrangements will affect your credit rating, so be sure to consult with your bank before agreeing—but in most cases, that hit to your credit rating will be much less severe than the damage of defaulting on an unmanageable credit card balance.
4. Home Improvements
It can be tempting to put large purchases like home renovation supplies and furniture on your card—and many stores make it easy to finance—but the payoff horizon for those purchases is usually so distant, that you end up paying more in interest than the principal you owed in the first place. Home improvements and décor are long-range investments, not urgent necessities—save up for them, so you can reap the returns, instead of the credit card company.
Like medical bills and tuition, there’s almost always an easier way to finance your tax obligation than with a credit card. Firstly, the IRS offers installment plans with much lower interest rates than your credit card, and delinquent taxpayers who offer a reasonable schedule of payments are usually accepted. Second, charging your taxes almost always incurs a “convenience fee” from the credit card company, and may lower your credit score.
Tara Wagner is a staff writer for TechBreach. She has worked from home for over a decade, and loves sharing news and advice with fellow telecommuting moms and dads. She’s fascinated by new tech and new ideas; and when she finds time to unplug, she enjoys long hikes in the mountains near her home. She lives in Denver.
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