7 Things to Never Put on a Credit Card

Credit cards are a great convenience. They allow you to buy things without carrying around cash or your checkbook, and you can stretch your payments over time to finance big-ticket purchases. That being said, there are certain items that don’t belong on your credit card – here’s seven of them:

Mortgage Payments

Most banks and other mortgage lenders do not allow you to pay your mortgage from a credit card. There are third-party companies that can arrange for you to charge your monthly mortgage payments with a credit card, but the service usually comes with a significant fee. Even worse is not paying the credit card balance each month, as this will incur interest charges on top of the fees.

The only way it makes sense to put your mortgage on your credit cards is if you meet all the following three conditions:

You can make the payment without triggering fees.
You can pay the full balance each month.
You get rewards on your credit card spending, such as cash back, miles, or points.

By meeting all three criteria, you can turn your credit card into a rewards machine.

Cash Advances

Many credit cards allow you to use some of your credit line for cash advances. Unless you have an emergency that you can’t resolve any other way, cash advances are usually a mistake. They incur interest every day the cash advance is unpaid (there is no grace period), and the APR on advances can easily exceed 25%. Also, many credit card companies charge a fee of 3% to 5% or higher for each cash advance. Short of an emergency situation, consider less expensive sources of loan funds.

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Monthly Household Bills

At first blush, it might seem like a good idea to automatically pay certain monthly bills, such as rent, utilities, cable, insurance, and more on your credit cards, especially if you earn rewards for this spending. However, the problem occurs when you don’t track your monthly spending each day, as you then run the risk of exceeding your credit limit. Doing so can trigger late fees and a penalty APR that doesn’t go away.

College Tuition

It’s possible to pay tuition on your credit card if your credit limit is high enough. But it’s unlikely that you’d then repay the balance in the same period, leaving you with a monthly APR often exceeding 20% for your college expenses. In addition, the college may tack on a convenience fee of 2% to 3% for charging tuition on your credit card. Federal student loans are available for about 4 ½% interest while private ones usually don’t exceed double that rate. In addition, Federal student loans provide a number of benefits that help you repay them comfortably. You can visit the Federal Student Aid website for complete information.

Income Taxes

It’s perfectly legal to pay your taxes via your credit card, but you’ll pay a fee around 2% for the privilege. That can add up quickly if you owe several thousand dollars, and if you can’t pay the balance all at once, you’ll be paying an APR of anywhere from 15% to 30% or higher on the unpaid balance. If you need to pay over time, speak to the IRS – they can arrange financing and the rate might be lower than that charged by the credit card.

Medical Bills

Even with insurance, medical bills for serious conditions can really mount up. But putting a large medical bill on your credit only makes it more expensive. There are usually better options for financing your medical bills. You should first contact the finance office at the hospital and negotiate a pay-off plan. You’ll probably pay a lot less interest this way.

One exception to this rule is if you have a credit card specifically geared toward financing medical bills. These usually provide you with a tax-deferred repayment period – if you repay the entire bill before the period ends, you avoid all interest costs. However, if you owe any money after the expiration, you’ll have to pay all the accrued interest, a risky proposition.

Automobiles

If you have a high credit limit on your card, you might be able to use the card to buy a car. True, you might earn a ton of points for the large purchase, but the chances are you’ll be paying a much higher APR than you would with a regular car loan or personal loan. The reason is that an auto loan is secured by the car – the repo agent will reclaim the car if you miss enough payments. This reduces the lender’s risk, and it can charge you a lower APR. You don’t get this benefit from a credit card. Also, the large balance on your card could send your credit utilization ratio well above 30% and damage your credit score.

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Eric Bank

Eric Bank is a business and personal finance writer who has been featured in Credible, Wisebread, CardRates, Zacks and many other outlets. He holds an M.B.A. from New York University and an M.S. in Finance from DePaul University.