Five purchases to avoid putting on a credit card

Quick insights

• Whenever possible it may be wise to avoid putting any expense on your card that you cannot pay off within one billing period.
• Putting recurring expenses, like your mortgage and utilities, on a credit card may make it harder to follow a monthly budget.
• Some card issuers may charge a processing fee for some expenses like your mortgage, taxes or utilities.

Credit cards can be great tools for financial management. When used efficiently, they can help you build your credit, earn rewards and they also provide purchase protections. However, there are purchases that you may want to avoid putting on your credit card regardless of your financial outlook. In this article, we’ll talk about a few to help you make informed decisions about whether or not you want to put them on your credit card.

The types of purchases you may not want to put on a credit card

Credit cards can come in handy in a financial pinch, giving you access to credit and capital. However, which expense should go on a credit card can be different for everyone.  In general, it can be helpful to avoid putting any expense on your card that you cannot pay off within one billing period. In addition, some transactions may trigger a processing fee.

Below are a few expenses that you may want to avoid putting on a credit card. These expenses include monthly expenses that should be accounted for in your budget, expenses that will incur processing fees and expenses that you may have options to finance at a lower rate than your credit card’s standard APR. Additionally, you may want to be planning and saving for expenses like rent, tuition, vacations and weddings.

Let’s look at five of these expenses a little more closely.

Mortgage or rent

Mortgage and rent are typically one of the biggest line items in anyone’s budget. Using a credit card for large, recurring expenses like this could add up quickly, especially if you're not paying off the balance in full each month. This is why you generally want to avoid relying on your credit card to pay your mortgage or rent. If your mortgage lender allows you to pay with a credit card (not all do), they may charge a convenience or processing fee, making the cost of your mortgage payment even higher.

Plus, credit cards typically have higher interest rates compared to other forms of debt, such as mortgages. If you're unable to pay your credit card balance in full, you could end up paying significantly more due to interest changes.

Cash advances on a credit card

It may not be beneficial to get a cash advance with your credit card. There are several reasons why:

• They typically carry higher interest rates than regular credit card purchases and the interest on cash advances often starts accruing immediately.
• Most credit card issuers charge a fee for cash advances, which is usually a percentage of the amount withdrawn.
• Cash advances typically do not earn rewards points or cash back.

Household bills and utilities

Charging regular expenses, like household bills and utilities, to your credit card can make it harder to see how much you’re spending each month. If you’re not paying the balance of your card until it comes due, you may not have a clear picture of the money you have available to spend in your checking or savings account because you may not be accounting for your bills and utilities when looking at your account balance. Being unclear about your monthly expenses can make it harder to stick to a budget, and this lack of clarity can lead to overspending and debt.

Many utility companies offer budget billing plans, which average your yearly consumption to offer a consistent monthly bill. This can make budgeting easier without the risks associated with credit card use.

Also, some utility companies and service providers may charge convenience fees for payments made with a credit card.

Medical expenses on a credit card

Medical emergencies happen. And in the moment of a medical emergency, you may need to use a credit card. However, generally you may want to avoid putting medical expenses on a card because your healthcare provider may have a better alternative.  

Your healthcare provider may offer payment plans that are interest-free or have lower interest rates than credit cards. Additionally, some medical facilities have financial assistance programs for eligible patients, which can reduce the financial strain without the need for a credit card.

In some cases, medical bills may contain errors or be eligible for insurance coverage adjustments. If these expenses are immediately charged to a credit card, you could end up paying more than necessary. It could be wise to thoroughly review medical bills and explore insurance coverage or billing adjustments before making a medical payment with your credit card.

Taxes on a credit card

There are some purchases that earn rewards or cash back, but tax payments typically do not qualify. In addition, tax authorities, if they allow credit cards to be used for payments, may charge a convenience fee for payments made via credit card. For large tax bills, these fees can add up, increasing the overall cost of your tax payment.

If you are unable to pay off the credit card balance immediately, the interest on tax payments can accumulate quickly. Credit cards typically have higher interest rates compared to other financing options, such as personal loans or payment plans offered by tax authorities.

Using a credit card for large purchases

Any large purchase you put on a card has the potential to lower your available credit. When your available credit gets used up, not only are you unable to use your card for other purchases, but your credit score may be negatively impacted.

Before you put a large purchase on your credit card, there are a few things you may want to consider, including:

• Debt: If not managed properly, large purchases can lead to credit card debt. This is especially true if you're unable to pay off your balance in full and start accruing interest.
• Credit utilization ratio: Large purchases can increase your credit utilization ratio. A high credit utilization ratio may negatively impact your credit score.
• Potential for overspending: Credit cards can make it easier to overspend. Before putting a large purchase on your card, consider if it is within your budget or can be paid off in a reasonable time frame.

Whenever possible, you may want to consider regularly budgeting for large purchases like your mortgage, taxes, household bills and medical expenses.

In summary

You generally want to avoid putting anything on your credit card that you cannot pay off within one billing cycle. Putting recurring expenses, like your mortgage and utilities, on a credit card may make it harder to get a clear picture of your finances and follow a monthly budget. Some card issuers may charge a processing fee for some expenses like your mortgage, taxes or utilities making these expenses more expensive.