Five Times You Should Not Use Your Credit Card

credit card debtCredit cards are a convenience but there are times you should think about leaving them in your wallet rather than adding to your credit card debtBefore you charge it, here are some situations when using your credit card to make a purchase is a bad idea.

1. You Already Have Credit Card Debt

This is the number one reason not to use your credit card. If you are already paying interest costs on outstanding credit card debt then stop adding to your high cost debt.  Here are three reasons why:

  • Every item put on an unpaid credit card costs you more than you think. Does it make sense to buy something on sale only to have interest charges eat up your savings? Calculate the total cost after you factor in the interest you’ll pay on that purchase.
  • You will pay interest on purchases made with your credit card from the date of purchase if you don’t pay your balance in full each month. There is no interest grace period if you carry an outstanding balance of even $1 past the due date.
  • If you increase your credit card debt knowing that you cannot pay it back you may be guilty of fraud. If found guilty, this debt will not be dischargeable in a bankruptcy, consumer proposal or debt management program.

2. You Can’t Afford To Pay The Balance In Full

Credit cards should not be used as a financing option. If you can’t afford to pay off your purchase in full by the statement due date you should consider other alternatives.

  • If it’s an extra item you can’t afford right now, put off the purchase until you can save up enough money to pay for it.
  • If it’s something that’s a longer term investment, like a car repair or house repair, consider applying for other lower cost debt alternatives like a car loan, second mortgage or even a low-interest line of credit. Make sure you have an adequate down payment so you are not paying interest rates almost equivalent to credit card rates.

3. You’re Short On Cash

Next to payday loans, your credit card is probably one of the worst quick-fix solutions to a temporary cash shortage you can use.

  • When you take out a cash advance you are charged a cash advance fee, sometimes an ATM fee as well. These fees can range from 1% to 4% of the withdrawal. Think you will save money by only withdrawing a small amount?  You won’t since most banks have a minimum fee charge of $3.50 for withdrawals in Canada and $5.00 for international withdrawals.
  • In addition, you are charged interest from the date of your cash advance even if you pay off the balance by the due date. A $100 cash advance at your local ATM for 20 days can cost you as much as $7.50. That’s pretty expensive short-term cash.

4. You Don’t Know Your Credit Limit

This one might seem strange but did you know that most credit cards charge a fee if you go over your limit, even if it’s by a small amount?  While the charge might go through it can cost you between $30 – $50 extra. Need another reason?  If you don’t know what your credit limit is or don’t know how much your current balance is, you need to develop stronger debt management skills before you swipe. Keeping track of your debt is an important step in keeping those debts under control.

5. You Are Under Emotional Stress or Under The Influence

Shopping when you are unhappy or not in control can lead to costly impulse purchases and overspending. Do this too often and your debts will slowly accumulate beyond what you can repay. This will only add to your worries and stress.  Instead, talk to a friend or professional if you need help dealing with an emotional issue.  If you tend to spend too much when you go out with friends, take cash and not plastic.

Anyone can benefit from the convenience of credit cards when they are used properly.  The key to managing credit card debt is being able to control your spending and avoid unnecessary credit card charges. Keep your credit card in your wallet if any of the above situations sound familiar and you will be well on your way to responsible credit card use.

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