By Ismat Mangla
While you can use a credit card to pay for just about anything, 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:
1. Your Taxes
It’s tax season, and if you owe Uncle Sam money, you may be tempted to stick the bill on your Visa or Mastercard and call it a day. Resist the urge. Sure, it’s perfectly legal, but the IRS will charge you merchant processing fees for the transaction, typically anywhere between 1.8% and 2%.
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 0.5% a month—but it’s still a better deal than your card.
A short-term personal loan may also be a better alternative, but only if have stellar credit and get a much better deal in terms of interest rates.
2. Your College Tuition
Education isn’t cheap. But paying for it with a credit card is never a good solution. If you do need to borrow to pay for tuition, the interest rates on student loans will almost always be lower than the ones charged by your credit card.
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 2% to 3% processing charge for paying with a credit card, which is a lot of money on a typical tuition bill of several thousand dollars.
3. Your Mortgage
Paying your mortgage with a credit card is also not a good idea—especially because most lenders won’t let you do it. There are third-party companies that eagerly help you with the transactions though—along with a hefty “convenience” fee, of course.
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.)
4. Big-ticket Items You Can’t Immediately Pay Off
It’s tempting to charge a vacation or that new big-screen HD television to your card and worry about the details later. But unless you’re 100% certain you can pay that bill at the end of the month, don’t do it.
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 0% 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.
5. Medical Bills
Health care costs continue to skyrocket, and sometimes you have to undertake treatment that isn’t covered in full by your insurance. But if you can’t afford a medical bill, charging it to a credit card is not your only option.
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.
Bonus Items: Stocks and Other Investments
It’s a bad idea to use credit to pay for stocks, which can be very high in risk. (It’s also pretty difficult to do so, but people find workarounds, like using credit cash advances or focusing on certain eligible trades.)
Case in point: A financial analyst in Vancouver tried to take advantage of this week’s dramatic stock market tumble by investing $10,000 on his credit card.
This article originally ran on the Experian blog. This is an edited version reposted with permission.