4 Times You Shouldn’t Use a Credit Card
Credit cards can often come in handy; they can come with great rewards programs and are essential for the health of your credit score.
However, credit cards are also a double-edged sword. There are circumstances where it is not in your best interest to use them. If not careful, misuse of credit cards can quickly lead to unmanageable debt. Here are 4 times you shouldn’t use a credit card and why:
1. To Get You Out of an Emergency
In theory, credit cards can seem like a great way to pay for a large unexpected expense. That is, until you spend years paying the minimum balance and accruing interest and mountains of debt. In some cases, a credit card may be your only option. But ideally, you will have a healthy emergency fund that you can draw funds from instead.
If you don’t have one already, consider adding a line item to your budget for monthly contributions to your emergency fund. Ideally, you’ll want to save at least 3-6 months’ worth of expenses. Your emergency fund will be able to cover you in the event of a job loss, large medical expense, or unexpected home repair. When it comes to maintaining financial stability and avoiding debt, keeping a well-stocked emergency fund is key. While it might take some time to get started, having an emergency fund is sure to provide you with the financial support and peace of mind you need.
2. When You Can’t Afford to Pay the Balance
Many people treat credit cards like free money. They charge large purchases without thinking twice about the consequences or the true cost. If your average balance is $2,000 and your APR is 20%, you’ll owe $33 in monthly interest, or around $400 a year. If your credit card offers rewards points that you want to take advantage of, feel free to charge the purchase to your card. But rather than spending years paying only the minimum balance and accruing interest, work in advance to save the money you need to pay for it in full. You’ll save yourself a lot of stress and money, and avoid getting in over your head in debt.
3. When You’re Applying for a Mortgage
When in the process of getting approved for a mortgage your credit history and score will be under intense scrutiny. Making a large purchase and using up a large portion of your available credit while applying for a mortgage is frowned upon. It will be a red flag to potential lenders. This is because it may signal issues with impulse control or that you may have trouble making your monthly payments. Until you’ve secured you mortgage, resist charging a large purchase like a TV or down payment on a car. Pay with cash instead.
4. To Pay Off Other Debt
The saying goes, “Don’t rob Peter to pay Paul.” In other words, don’t take on debt to pay other debt. If you are having trouble meeting financial obligations such as paying utilities, making car payments or rent, or paying your student loans, the answer is not to pay these expenses with a credit card. While it may seem like this helps you in the short term, in the long term you are actually only taking on more debt and accruing interest the longer you take to pay off the balance in full. If you’re having trouble managing your debt, it’s in your best interest to find other means of meeting your financial obligations. Consider using a budgeting tool or speaking with a qualified attorney who specializes in debt solutions.
Credit cards can be a credit financial tool when used responsibly. By knowing when and how to use your credit card, you can avoid taking on unmanageable debt and build a great credit history while you’re at it. If you’ve found yourself in need of help to overcome the burden of your credit card debt, give Tayne Law Group a call today at (631) 470-8204 to schedule a free phone consultation.