Credit is a tool but here’s things to never charge to a credit card for better peace of mind and financial wellbeing.
Did you know that the average credit card debt of U.S. families is $6,270? That’s according to the most recent data from the Federal Reserve’s Survey of Consumer Finances. On average, we carry a ton of credit card debt. It’s a stress ball that so many of us carry.
Because of this I’ve met and read about people who avoid credit cards like the plague. Personally, I don’t have an issue with credit cards. If we’re buying only what we can afford, and paying off balances in one to three months, I think credit cards are an excellent financial tool; and I use plastic primarily for reward points and cashback, and rarely carry a balance from month to month.
However, I recognize that some people have to avoid credit cards due to spending problems or self-control issues, and that’s perfectly understandable. But although I feel that credit cards can be a useful accessory, I also agree that there are things that should never be charged to a credit card. Here’s my list, and you can tell me whether you agree.
Paying Your Mortgage
I have to be completely honest. I was upset to learn that my mortgage company — Bank of America — did not allow credit card payments. About four years ago, a friend revealed how she paid her mortgage with a credit card to earn reward points. I thought this was an ingenious idea and excitedly called Bank of America to see how I could set up credit card payments, only to be turned down because the bank did not allow credit card payments for mortgages or auto loans.
At the time I was slightly crushed; but looking back, it’s a smart move by the bank. Although many people might charge their mortgage and immediately pay off the charge, others might leave the charge on their card, ultimately adding to their debt and complicating their finances. And you want to be mindful if there are additional charges levied for choosing to pay a loan off with a credit card. Some lenders that do take credit card payments will add a 3-5% fee on top of the payment.
Paying College Tuition with a Credit Card
I’m still paying on a student loan 13 years after graduating college. So, I completely understand the temptation to charge college tuition and pay off a credit card throughout the semester. This can alleviate student loan debt upon graduation, but only if you’re actually able to eliminate the balance by the end of each semester.
Your intentions might be good, but things happen. And if this debt sits on your card for years, the interest you pay may exceed the average interest on a federal student loan. Also, some colleges charge a 2% to 3% processing fee for credit card payments. Getting a low-rate federal student loan is probably cheaper; and with the option to make in-school payments, there’s still a chance of graduating with little or no debt.
Using a Credit Card to Splurge on a Fabulous Dream Vacation
There’s nothing wrong with splurging on a vacation, but think twice before charging this dream getaway — especially if you can’t quickly pay off the balance.
The purpose of a vacation is to clear your mind, reduce stress and return home ready to take on the world. However, you won’t come back rejuvenated if you incur massive debt while away. You can have fun, but the trip you plan should be within budget — and preferably one that you can pay in cash.
Never charge your vacation expenses to a credit card if you can’t pay it off. Don’t use credit for a vacation getaway to only return home with debt.
Financing an Extravagant Wedding with a Credit Card
Using plastic to pay for a wedding venue, a wedding dress, a wedding cake and a honeymoon might bring your dream wedding to life; but happily ever after doesn’t always happen.
When couples get caught up in wedding planning bliss, there’s the temptation to go deep into debt creating a dream event or “wowing” guests. Realistically speaking, there’s always the possibility that wedding debt will outlive the marriage. I know, no one wants to think about this when they’re in love. But honestly, one in two marriages in the U.S. end in divorce. I’m not saying that your marriage will go up in flames, but if it does, do you really want to spend the next few years paying for a marriage that didn’t work?
It’s important to have an open and honest conversation about money with your fiance. In her bestselling book, Erin Lowry shares money scripts to break the money taboo with your future spouse or partner. Get Broke Millennial Talks Money, available wherever books are sold or use our affiliate link on Amazon.