Credit cards offer many protections that debit cards do not. With a credit card, you can dispute fraudulent charges, for instance. For some things you spend money on, however, you may want to explore other methods (cash, checks, bank or other financing) of dispensing your dollars.
Obviously there are two big problems with credit cards: interest, and their tendency to throw you into a vicious cycle of debt. Additionally, using up too much of your credit limit (more than 30 percent) can actually hurt your credit rating. Here are a few traps to avoid — and why you should avoid them.
Medical Bills
Medical bills can be staggering, and better options exist over pulling out the plastic. When you’re in a bind following a medical procedure, talk to the billing department and explain your situation. Ask about income-based discounts and payment plans. Often there is no interest charged if a reasonable auto-checking payment-installment plan is established.
College Tuition
While financing now and paying later is the American way when it comes to schooling, charging your school expenses to your credit card is a terrible idea, which you’ll find out quickly once the interest begins to compound. Unless you want to pay double or more for college, remember that higher education can be funded through low-interest student loans, scholarships, grants, and part-time jobs.
Bar Tabs
Even if you’re a responsible drinker, your friends may not be. Avoid the urge to yell, “Just put it on my tab!” at a bar. Even if you’re drinking alone, the risk of identity theft and fraudulent charges is too great — especially if you’re too tipsy to notice what’s going on.
Gambling
If you don’t already think gambling is a bad idea, be assured that gambling with borrowed money most definitely is! Whether you gamble online or in a casino, whatever you gamble with will be considered a cash advance, which involves a nice little fee and higher interest rates.
Taxes
The IRS makes it easy to use a credit card to make payments through one of their authorized credit card companies. The kicker: payment processors will collect a fee of 1.88 percent to 2.35 percent up front. The IRS will allow you to set up a payment plan with a more competitive interest rate. IRS underpayment interest rates change each quarter, but are generally far better than any credit card’s standard interest rate. You can also adjust your withholdings to avoid underpaying taxes in the future.
Big-Ticket Items
Your credit card may offer automatic warranties or certain items, but often financing through the furniture or electronics store itself offers benefits like zero-percent financing for several months. Consider these options before paying loads of interest on these debts.
Be smart with your plastic. While credit cards offer points, trip insurance, warranties, fraud protection, and other benefits, it’s always best to avoid debt, fees, interest, and identity theft wherever you can. Before using your card, consider other options.
