In this age of strapped-for-cash financial distress, credit can seem like an easy solution to your immediate money problems. Whether your personal purchases move to plastic or your business expenses, the interest rates on credit cards are much higher than a traditional bank loan and can take a toll on your purchasing ability in the future, should you be unable to pay off those blanket costs. Avoid making large purchases on your card.
Down payments on homes can cost up to $20,000. To take a large sum in advance from a credit card means you'll face fees anywhere from 10 to 30 percent of that original cost. Unless you can pay that back within the month, you'll end up with double the debt you originally incurred. Monthly mortgage or rent payments will also drain your bank account if you put them on credit, unless you pay the entire sum of the card off each month. These large purchases often force you deeper debt, rather than being the quick fix you may have hoped for. You also might have to go through a third-party service to put your mortgage on credit, and that service will charge a hefty fee of its own.
Start carrying cash with you, because the more small items you put on a credit card each day, the more they add up. Five dollars here and $20 there soon becomes $400 that you can't pay off when your monthly statement comes. And once you have debt that you can't pay off entirely, the interest builds. Another downside to paying for small things with credit is that you can lose sight of how much you're actually spending at any period in time. Without the physical reminder of bills or lack of bills in your wallet, your supply can seem endless. In truth, when you may think you've spent only $50 on small items in any given month, you could have spent triple that and simply not remembered because there was no accountability at the time.
If you pay your taxes with a credit card, you have to pay a convenience fee of 2 to 3 percent of what you owe, which is on top of the high interest rates of the cards themselves. Charging your taxes can hurt your credit score and make you look like a risk to a future card issuer. If you can't pay your taxes up front, check with the Internal Revenue Service directly, as they have several payment plan options.
While furthering your education can be important in your career and will help you earn more money in the long run, if you charge the tuition costs on a credit card, it is very likely you won't be able to pay that cost in full within the month. The large sum will accrue interest charges of up to 30 percent. If the college accepts credit card payment for tuition costs, they will often charge an additional processing fee of 2 to 3 percent. There is no reason to incur this kind of debt. Look for other payment options like scholarships, student loans and grants.
Darlena Cunha has been a writer and editor since 2003. She has a Bachelor of Arts in journalism and a Bachelor of Science in biology from the University of Connecticut. Cunha is also completing her master's degree in mass communication.