Credit card debt, excessive unnecessary spending and eventual debt are the consequences of poor credit card usage. I’m sure that most of you out there have a credit card, where some of you use it to pay for extra expenses till the next salary, some use it to buy luxuries and some don’t even use it all because of the fear of debt.
While excessive use of credit cards and poor financial management can indeed lead to debt, it can be avoided if you know when you should NOT use these cards. There are so many situations and instances where you shouldn’t use credit cards that I’ve decided to split my article into parts. Here are a few instances where you SHOULD NOT use credit cards.
1. Paying household bills with credit card
If you are finding it difficult to make ends meet at the end of the month, you will most likely get tempted to use your card to pay off your cable, utility or cellphone bill. However if you don’t plan to pay off the entire amount used every month, the interest you are charged only ends up increasing your monthly expenses.
It’s instead better if you work at reducing your expenses or increase your income by getting a part time job. This way you end up with more money at the end of the month to make ends meet. Paying off household bills with your card only leaves you with an increased credit card balance, and more money to pay off the next month.
2. When you near your credit limit
Never use your credit card when you are near its limit as your credit score drops even if you still have a few hundreds to spend. If you are nearing your credit limit, it’s important that you either ask your company to raise your credit limit, find some alternative payment option or switch to a lower or 0 balance credit card. Making new purchases is not the answer, it only complicates matters.
3. Binge shopping and spending sprees
It’s a known fact that people who love shopping usually spend more than they should. This especially applies to the internet shoppers, who at the end of the day visit websites and go on clicking and buying things. It’s okay if you are a calculative person, but if you are one of those who tends to get carried away looking at beautiful purses, watches, ties, jewelry or clothes, then it’s better to stop using your credit card for buying things. A safer bet is using a debit card. This way you at least know how much you have to spend, and don’t end up spending more than you can afford.
4. Buying your car with credit card
Automobile dealers generally don’t entertain credit-card purchases. If they do, they usually limit the purchase price put on your car. They don’t like, and prefer avoiding paying the 1 to 3% fees card companies charge them for processing their transactions.
You can use a cash advance option instead, but be ready for its fees and higher interest rates. There’s also no grace period on the interest as it starts accumulating immediately. This is why its better you go to a credit union or bank to approve a reasonable interest rate financing option before shopping for a new car.
5. Getting an extended warranty at car dealerships
It’s always better to roll your car warranty costs into your car loan. Though it may lead to slightly higher car payments, it’s better than paying a high interest for your credit card.
6. If and when you receive a bank notice that your rates will increase
This bank notice is usually a clear indication that you need to stop using your card. It’s mandatory that credit card companies give you 45 days’ notice before your rates go up and the new rates usually apply to all purchases made on the 14th day after you receive the notice.
It is during this time gap that you need to hold negotiations with the card company to plead the old rate. If they don’t seem to be ready to budge, then perhaps you should consider switching to a different credit card company charging lower rates. If nothing happens, then you should at least stop using the card. This is absolutely not the time for you to use your credit card.
Intrigued to find out the other instances where you should not use your credit card? Don’t worry. You’ll find out through my next blog post!