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Should you use your credit card for this? This is the type of question you might mull over whenever you’re about to go through with a transaction. You’ve pulled out the credit card from your wallet and stopped to think about whether this is the right time to use it.
Take a look at his handy list of circumstances of when you should and shouldn’t use your credit card. It should clear some things up for you.
Use Your Credit Card When…
You’re Handling an Emergency
When you’re facing a small emergency expense, like a sudden car repair or plumbing fix, you should use your emergency fund to pay for it. If you don’t have enough savings in your emergency fund, you can turn to your credit card as a backup solution. You can charge the emergency expense to your card and then pay down the balance steadily afterward.
What if you don’t want to use your credit card? Then, you can look into online loans as another backup solution for covering the expense. As long as you meet the qualifications for an online loan, you can apply and wait to receive a response about your approval status. If you get approved, you can use the borrowed funds to handle the emergency and follow a repayment plan afterward.
You’re Shopping Online
Your credit card is the best tool to use when you’re shopping online. Why? Credit cards offer more protections against credit card theft and fraud than debit cards. If someone steals your credit card information and uses it to make unauthorized transactions, you will be liable for a maximum of $50 — no matter how much the unauthorized transactions cost. Certain credit cards offer zero liability for their customers, meaning you don’t have to spend a single cent on unauthorized transactions.
So, the next time you’re at the checkout page for an online store, pull out your credit card.
Don’t Use Your Credit Card When…
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You’re Paying Taxes
Technically, you can pay your taxes with a credit card, but it’s not the best payment method. Why? Paying your taxes by credit card or debit card comes with a processing fee, which varies depending on the payment processor you’re using. However, the processing fee for a debit transaction is a flat fee between $2.00 to $3.00.
For credit card payments, your processing fee will be in the form of a percentage (approximately 2%). So, you could find yourself paying much more than $2.00-$3.00 when you use your credit card to cover your payments.
Another issue with using your credit card for tax payments is that you could rack up a steep balance on it. This will give you a high debt load to tackle by your next bill, and if you don’t pay it down, it will quickly accrue interest.
You’re Covering a Large Expense
When you need to cover a large expense, you shouldn’t turn to your credit card for help. Why? A large expense will instantly give you a high balance on your card. That balance will quickly accumulate interest and creep higher with each passing month. It could be very difficult to whittle down in a short amount of time.
For instance, a large medical bill isn’t something you should charge to your credit card. You’re better off paying the bill in monthly installments. These monthly installments will come with their own interest rates, but they are likely much lower than the interest rates attached to your credit card. This way, you will have more control over the repayment process.
The Balance Is Too High
If the balance on your credit card is close to the set limit, you shouldn’t add another transaction to it. You should try your best to shrink that balance before you put another charge onto it.
Why? First, increasing an already high balance will make it harder to pay down. It will take more time, effort and funds to pay off the card in its entirety. The higher your balance is, the more interest it accumulates. If you’re not careful, you could accidentally max out your card.
A maxed-out card will leave you with a considerable amount of debt to pay down and no available credit to use for transactions, including emergency ones. Your credit card company could penalize you for maxing out your card by raising your interest rate. Considering how high credit card interest rates already are, you don’t want yours to climb higher.
Another reason why you should avoid using your credit card when the balance is high is that it will have a negative effect on your consumer credit score. A high credit utilization ratio shows that you are at a greater risk of defaulting on future payments and at greater risk of maxing out your card. This could lower your score until you rectify the issue.
Now you know when you should and shouldn’t use your credit card. You can rest assured that you’ll charge it wisely.