Don't Put These Expenses on Your Credit Card -- Here's Why

Credit cards can be a valuable tool for financing purchases, earning rewards and potentially earning a welcome bonus.

But credit cards aren’t for every type of purchase. The fees and interest you’ll incur with some purchases can offset the benefits you’d earn with a card, so it’s important to understand how a purchase could affect your finances before you pull out the plastic.

Steering clear of these credit card purchases could help save you money and keep you out of credit card debt. 

Why you shouldn’t use a credit card for every purchase

Credit cards offer the convenience of paying quickly and easily, but making a purchase with one can come with costs -- typically fees and interest.

Credit card fees

Every time you swipe your card, there are a handful of fees that are charged behind the scenes. 

Banks and card issuers charge merchants “swipe fees,” or interchange fees, for processing transactions. The fees can range from 1.0% to 3.0% or higher -- or they may come in the form of a flat cost. 

If you’re making a purchase at a large store or online seller that handles a large volume of credit card transactions, the merchant may absorb the swipe fees as a cost of doing business.

However, the merchant may pass along the swipe fees to the customer, often referring to them as a “convenience fee.” Although it may be only a small portion of your purchase, the fees can add up and offset any value you get from using the credit card to earn rewards.

These fees aren’t always obvious. Most times, you’ll need to check the fine print before finalizing your transaction. 

Credit card interest 

If you don’t pay your balance in full by the statement due date, you’ll likely incur interest charges. You typically have a period of time known as a grace period after your billing statement is due during which you can pay your new charges off interest-free. However, if you carry a credit card balance from one month to the next, your balance will accrue daily interest until it’s paid off.

If you pay off your balance every month, interest shouldn’t be a factor when deciding whether to use your credit card for purchase. However, if you have a large expense you know you can’t afford to pay off immediately, it may be tempting to charge it to your credit card. 

But a costly payment can turn into an astronomical expense as compound interest accrues on the balance each month. Remember, interest can be charged on the purchase amount and any processing fees you were charged to use the credit card.

4 things you shouldn’t charge to your credit card

Due to processing fees and credit card interest, there are certain bills you shouldn’t typically charge to a credit card. Some of these bills are better left with the original creditor due to the protections you get, which we’ll explain in more detail below.

Medical bills

You should avoid using a credit card to charge medical bills you can’t afford to pay right away. First, it’s likely the hospital or medical provider you owe will let you make payments on your debt directly, potentially without any interest. Even if the provider won’t offer a payment plan, you’re likely better off asking them to send the bill to you. 

You may be able to negotiate for a lower bill if you can pay it in full. And worst case scenario, government agencies are increasingly advocating for medical bills to be removed from consumer’s credit reports. For example, a newly proposed rule from the Consumer Financial Protection Bureau would remove $49 billion of medical debts from the credit reports of more than 15 million Americans.

This means medical bills you can’t afford to pay in the future may never have the power to harm your credit score. But if you charge your medical expenses to a credit card, you’ll likely lose these protections. Additionally, having a large outstanding balance on your credit card can increase your credit usage, which can lower your credit score.

College tuition

If you’re considering paying for college tuition with a credit card you can’t pay off in full, your first option should instead be student loans. Federal student loans in particular come with low fixed rates that help make college more affordable, and most types of federal student loans don’t even require a credit check. But even private student loans can offer much better interest rates than most credit cards.

Federal student loans also come with protections like deferment and forbearance, as well as the ability to qualify for federal income-driven repayment plans. When you pay college tuition with a credit card, you lose out on all of these benefits.

The Biden administration, for example, has continued to try to relieve the stress felt by student loan debt -- though it’s hit a few roadblocks.

Rent or mortgage payment

There are platforms out there that let you pay your rent or mortgage with a credit card, but costly fees tend to apply. With a platform called PlacePay (formerly RentShare), for example, individuals can pay rent with a credit card in exchange for a 2.99% fee. Another platform called Plastiq lets individuals pay rent and many other bills in exchange for a 2.9% fee.

That means if your rent is $2,000 per month, you’d pay an additional $58 to use a credit card each month.

Considering the best credit cards let you earn up to 2% cash back at best if you paid your mortgage or rent with a credit card, you likely won’t earn enough rewards to offset the fees. If you wind up carrying a balance and paying credit card interest as well, the financial consequences of this move could be even worse.

However, there is an exception. The Bilt Mastercard® earns 1x points per dollar on your rent (up to 100,000 points each calendar year) without charging a transaction fee. When you use the card 5 times each statement period you’ll earn points on rent and qualifying net purchases.

Taxes

You can typically charge government tax payments to a credit card, but the fees make doing so cost-prohibitive for most people. For example, federal tax payments made to the Internal Revenue Service can be made with credit through several platforms with fees that range from 1.82% to 1.98%.

There are credit cards that earn 2% cash back, which is essentially enough to cover that fee. However, you will need to be able to pay your card off in full if it doesn’t have an introductory purchase APR. Otherwise, the balance you charge to the card will accrue interest, and you’ll likely end up paying more than had you used another payment method. The minimal rewards you earned by using the card would also quickly disappear.

The exception: introductory APR credit cards

While in general you shouldn’t pay the bills we list above with a credit card, there is an exception. Cards that offer an introductory 0% APR on purchases for a limited time, as well as rewards that can help make up for fees.

Consider the Wells Fargo Active Cash® Card as just one example. This card gives new members a cash rewards bonus of $200 when they spend $500 on new purchases within three months of account opening. Cardholders also earn a flat 2% cash rewards rate on their purchases, and they qualify for an introductory 0% APR on purchases and qualifying balance transfers for 12 months (then 20.24%, 25.24% or 29.99% variable).

Depending on the size of the fee, this card makes it so someone could charge a bill to their card and still end up in the green from the rewards they earn. Then they would have more than a year to pay down the amount they owed without accruing interest.

Just keep in mind that if you’re unable to pay off your debt within the introductory 0% APR period, it’ll begin to accrue interest once again. So don’t charge anything to a credit card you can’t pay off before the introductory period ends.

To figure out how much you’ll need to allocate toward the balance each month in order to pay it off in time, divide the balance by the number of months in the promotional period. 

For example, if you’re charging a $5,000 tax bill to your card that has an introductory 0% purchase APR for 18 months, you’d need to pay at least $278 per month to pay it off on time. And don’t forget to factor in the transaction fee for paying your taxes with a credit card, which will likely add another $100 to your balance.

Things you can charge to your card

While some expenses really shouldn’t be charged to a credit card unless you absolutely have to, using your card for some purchases can help you earn rewards that help you save on purchases. Choose the best credit cards for rewards to maximize your earnings.

• Everyday expenses: Charging everyday expenses like gas and groceries to a credit card can help you earn valuable rewards.
• Subscriptions: Charging your regular subscriptions and streaming services to a credit card is convenient, and many cards let you earn bonus rewards on subscriptions you have for television, music, meal delivery and more.
• Travel: Paying for travel with a credit card can help you earn valuable travel rewards points for each dollar you spend, and you can even qualify for travel insurance benefits if your card offers them.

Just remember that you’ll still wind up paying interest on these purchases if you carry a monthly balance.

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