You can use a credit card to pay for just about anything, but that doesn’t mean you should. Here are five purchases to keep away from the plastic, no matter how tempting those rewards points might be:
If you use third-party software to file your taxes, you’ll likely pay even more. What’s more, you don’t want to incur interest charges on your tax bill, which can get out of hand if your bill is large and takes a while to pay off.
If you owe a lot of money and need some help, consider asking the IRS to put you on an installment plan. You’ll have to pay a small amount of interest — usually around .5 percent a month — but it’s still a better deal than your card.
A short-term personal loan may also be an option, because you’ll likely be able to get a much better deal in terms of interest rates.
What’s more, large charges like tuition will almost certainly increase your credit utilization ratio (the amount of credit you use in relation to the amount of credit you have available to you), resulting in a hit on your credit scores. And most colleges and universities will add a two to three percent processing charge for paying with a credit card, which is a lot of money on a typical tuition bill of several thousand dollars.
What’s more, you’ll compound your debt with steep interest rates if you don’t pay the balance off at the end of the month. (And since your mortgage is likely one of your biggest expenses each month, it’s going to eat up a lot of your available credit, thus affecting your credit scores.)
The interest charges on a big purchase multiply quickly, which means you’ll end up paying significantly more money for the item. And large purchases will also bring your credit utilization ratio up, dragging your credit scores down.
Sometimes when making a big purchase, you’ll be tempted to pay for it with a new credit card that offers a zero percent introductory rate for a certain period, like six to 18 months. Only go for this option if you can afford to open a new account.
Remember, hard inquiries on your credit report typically cause your credit scores to take a temporary dip. And be certain to pay the purchase off in full during the introductory period, or you’ll be charged steep interest rates once that period ends.
In fact, divide the debt by the number of months you have to pay it off and schedule automatic monthly payments for that amount until the balance is zero.
Most medical providers will be willing to work with you pay off medical bills in installments, often at little or no interest at all.
Such arrangements are beneficial not only because you’ll save more money than if you use a credit card, but also because your credit score won’t suffer.
You can also call a hospital or medical provider to negotiate a lower payment amount. These providers are often interested in coming to a solution with the patient rather than having to write the debt off altogether.
Case in point: A financial analyst in Vancouver tried to take advantage of February’s dramatic stock market tumble by investing $10,000 on his credit card.
Tips sourced from Experian.
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