Credit cards are convenient, but if you want your sanity and pocketbook to survive intact, give the poor things a rest sometimes
Take a look at 10 times you should NOT use a credit card …
1. When you’re depressed or upset. For some people, shopping becomes a way to cope with life’s problems, says Kathleen Burns Kingsbury, a wealth psychology expert and founder of KBK Wealth Connection, a financial coaching company. “While you feel excited about your new purchases, it is only short-lived as guilt and remorse set in very quickly. In the long run, this unhealthy financial behavior can result in excessive debt and a great deal of personal turmoil,” she says. It’s best to develop other ways of coping, says Kingsbury, such as exercising, talking with a friend or journaling.
2. If you just went through a major financial change. If you’ve just lost your job, are going through a divorce, or have major health problems, it’s probably best to stay away from relying on your credit card because it can compound the problem, says Randy Hopper, vice president of credit cards at Navy Federal Credit Union. “Running up your credit cards during difficult times can make a tough financial time even worse,” he says. Instead, try cutting back on discretionary spending, and if necessary dip into savings. “The general rule is it’s not a good idea to put stuff on credit expecting that your situation will improve,” says Hopper. Often, it might take longer than you expected.
3. If you’re in the market for a mortgage or to finance a car. If you’re overusing your credit cards and have large balances, that can increase the cost of credit to buy a house or a car because you might not qualify for the best interest rates if your credit score isn’t stellar. “Keeping your balance and activity in order for at least six to 12 months prior to buying a house shows that you can manage debt,” says Hopper.
4. When you just received an unexpected windfall of money. Whether you get an inheritance or a bonus from work, many times the impulse is to go out and spend all of it on something you’ve wanted. Sometimes, that dream purchase — for instance, a kitchen renovation — actually costs more than the cash you’ve received, and the rest winds up on your credit card. Paula Langguth Ryan, author of “Bounce Back from Bankruptcy,” suggests waiting 30 days before you make any major decisions about how to use large sums of money. “Make yourself a plan: ‘How much do I want to set aside in savings so I don’t have a cash crunch all the time?’ If you do want to buy something, shop around. ‘What’s the best deal I can get on the things that I do want?'” says Ryan.
5. When you’re hungry or sleepy. To be mindful with your spending, you need to make rational, informed buying decisions. “You make your best financial decisions when you are well-rested and able to process the potential impact of the purchase both in the short and long term,” says Kingsbury. If you’re not feeling your best, you may make a rash decision. The best strategy to employ if you find yourself using your credits cards at these times of weakness is to leave them at home, she advises.
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6. When you’re at a casino. This one might seem like a no-brainer — until you’re under the spell of Las Vegas or some other party-like atmosphere. Tapping into credit is probably not wise when you’re using it to gamble. “Cash advances are never a good idea. Interest rates are so much higher. You already don’t have that money on hand, so you’re not going to have that money to pay it back,” says Ryan. Remember, there’s no such thing as a sure thing. Unless it’s a catastrophic event — and trying to win back your losses at the roulette table isn’t one — avoid cash advances at all costs.
7. When you’re close to your credit limit. Ideally, you don’t want to utilize more than 30 percent of your available credit since doing so can impact your credit score in a negative way, says Ryan. That being said, you can get into even more trouble if you use your credit card when you’re approaching the limit. “If you go over your limit, there might be a charge, and the creditor can raise your interest rate. Being maxed out will not only affect your credit score, but if there is an emergency, you won’t have access to credit.”
8. When you want to automate paying your bills. Having all of your bills automatically paid via your credit cards can be a great way to consolidate all of your payments in one place, says Hopper. But it only works to your benefit if you pay that bill off in full every month. In other words, only the most responsible and consistent of credit card users should employ this bill pay method. “If you’re carrying a balance, your automatic payments are costing you a fortune because of interest,” cautions Ryan. If that’s the case, switch your automatic payments to your bank account instead.
9. When you’re traveling abroad. Bear in mind that there are foreign transaction fees associated with using credit cards overseas that can tack 1 to 3 percent onto each purchase, warns Ryan. In addition, some smaller vendors might not accept certain credit cards as payment. The point is, be sure to research your options beforehand, including traveler’s checks, debit cards and cash. Credit cards could still be the least costly option, says Hopper, especially if the credit issuer has low or no fees for foreign transactions. The best course of action is to call your credit card company before you go for information about fees, as well as to let them know that you’ll be away so your activity doesn’t set off any fraud alerts.
10. When paying with cash can get you a better price. If you enjoy shopping at flea markets or in local mom and pop shops, paying cash can sometimes give you more room to negotiate the price, says Ryan. “Even when you’re buying gas, you can sometimes get a better price by using cash,” she adds.
Learning when not to use credit cards — or at least to stop and think before you swipe — can help you maintain a good credit standing.