If used properly, your credit card can be a helpful tool for managing your personal finances. Credit cards can be used to pay for regular transactions, raise your credit score, and earn rewarding benefits. If you misuse your credit card, it's simple to ruin your credit and get into financial difficulties.
You should never charge for some things. The following five situations call for never using a credit card:
Student loans, scholarships, and jobs are all options for paying for your college education. Since credit cards charge interest on expenditures carried over from month to month, using one for tuition is not advised. Your balance can rapidly get out of hand if credit card interest charges are added to your tuition.
You don't have to start paying off student loans until after graduation, and their interest rates are often lower than those of credit cards. On the other hand, credit cards demand regular payments.
You can take cash out of your credit card balance with a cash advance. However, this could cost more than taking money out of your bank account. In most cases, cash advances and ATM withdrawals are subject to fees on credit cards. Additionally, cash advances on credit cards often have higher interest rates and no grace period like there is for purchases.
Many businesses tack on an additional convenience fee when you pay a monthly bill with a credit card to cover the processing expenses they must pay to the credit card company. When interest on your credit card balance starts to build up, you'll owe more money than your bills are actually worth. As interest mounts and additional bills become due, it is simple to go into debt.
It can be tempting to use your credit card to settle your tax debt if you owe the IRS because you can do so by paying off all of your debt at once. However, using your credit card may result in a hefty convenience fee from the IRS. You will be charged interest on top of your tax debt if you don't pay off your credit card balance right away.
The IRS provides options, such as settlements and repayment programs, to help you avoid charging your tax debt to your credit card if you are having trouble making payments.
Purchases That Are Excessively High
Generally speaking, you should charge your credit card for regular expenditures and settle the debt each month. By establishing credit in this way, you can avoid paying interest and maintain a low credit card amount.
Your debt will increase and interest will start to accrue if you consistently use your credit card to make purchases you couldn't afford to do with cash. If at all possible, pay off your balance in full each month to avoid paying interest.