15 times when you shouldn't use your credit card
There are plenty
of reasons to use a credit card -- convenience, accountability and safety among
them -- but when is it better just to step away from the swiper?
There are many out there who would say that there's never a good time to use a credit card, and that cash, debit or anything else would be a better choice. While forgoing credit for good may or may not be realistic, there are some times when it is best to just leave the card in your wallet or purse. Here are some times when you should never use your card:
After midnight. Paraphrasing Eric Clapton, after midnight tends
to be when people let it all hang out -- even financially. "After
midnight is the time
you get into more trouble rather than making a sound financial
you're at a club or casino, just go home," says Michael McAuliffe,
president of Family Credit Management in Chicago. Put the card away
and take another look in the morning.
- When you're near your credit limit.
"You don't want to be even within a couple hundred of your limit or your credit
score will go down," says Mary Ellen Nicol, counselor with CredAbility in Atlanta. If you're
getting too close to your credit limit, ask your credit card company to raise your limit, switch to
a card with a lower balance or find another way to pay.
When considering an extended warranty at
the car dealership. You can probably get a better deal if you roll the
warranty cost into the car loan. Even though you may have a slightly higher monthly
car payment that way, wrapping it into a secured loan likely still beats paying
high interest for it on your credit card, says David Johnson, bankruptcy
counseling director at ClearPoint Credit Counseling Solutions in Los Angeles.
- If you get a notice that your rate will go
up: "That's basically a notice that you should stop using your card," says
Lauren Bowne, a staff attorney with Consumers Union. Although the Credit CARD Act of 2009 says that credit card companies
have to give you 45 days' notice before your rate goes up, there's a quirk in the law. The new rate actually applies to purchases starting on the 14th
day after you get the notice. This is the time to negotiate with your credit
card company to plead for the old rate, switch to a different company with a
lower interest rate or put yourself on a credit fast.
If you're paying off one card with another,
and it's a habit: "If you're
swapping your debt every six months, that's going to show up on your credit report," Bowne says. If it's a one-time thing, consider whether the offer is
too good to be true. "Transfer fees have gone up at least a percent on average
in the last year," Bowne says. "We're talking about 4 percent of your debt
you're going to pay up front just to transfer the debt." Be clear on the rate
you will pay after the promotional rate ends. It could be higher than the rate
you're trying to escape from, she warns.
- At a flea market: "It used to be that
you always had to have a wad of cash. Now, through the magic of technology,
some guy selling rickety, old wagon wheels can take your credit card," Williams
says. This is the kind of purchase where convenience doesn't outweigh the risk,
she says. Bring the cash.
If you think
you're building your credit history: David Beddoe, counselor with
Financial Solutions in Seattle,
says he hears that a lot. While your
credit score goes up if you
pay off the purchases
you make, putting items on a
credit card without
paying them off will have the
opposite effect on your score, he says.
- If you can't pay for half of the purchase
with cash on hand: Say you need new tires, Nicol says. If you don't have
half the money right now to pay for the repairs, wait until you do. Then charge
the purchase, pay off half right away and make a plan to pay the rest in one to
two months. In the case of tires, you probably knew you needed them months ago
and that would have been the time to plan ahead for the expense, she says. Check
out public transportation or reduce your driving and save until you can afford
at least half.
- When it's all about the rewards points: Rewards points "should be nowhere in the equation for making that decision or not making
it," says Michael McAuliffe, president of Family Credit Management in Chicago. "Base your
decision on the merits of the purchase." Otherwise, you will tend to overspend.
If you want to finance a vacation, skip the coffee or dessert or find cheaper
parking and put away $5 a day for a year, he says.
When you think prices may drop: "For
many things in our society, we're starting to see deflation. If you think it's going
to cost less in three months, why start paying interest on it today?" McAuliffe
- To buy something from a website with an
obscure foreign extension: Don't charge online if you don't know who you
are dealing with, says Catherine Williams, vice president of financial literacy
for Money Management International. "While you always have protection under the
Fair Credit Billing Act, the damage that can be done during that 30 days (until
you see it on your bill) is just crazy." Study the website -- watch for
suspicious wording -- to make sure it is legitimate.
If you don't have a plan for paying it off:
"We always recommend paying a purchase off in no more than three months.
Without a game plan, you're playing credit card roulette. That's when people
get into trouble," says Kathy Virgallito, a regional director for Apprisen
charging things that you used to pay cash for: That's a red flag that
you're getting overextended, Virgallito says. You need to review your
credit card statements and identify where the budget issues are. If you're suddenly having
more car repairs or travel expenses to visit a sick relative, you may need to
create a specific savings account for those things rather than relying on
credit, she says.
When you feel that you'll save money by
purchasing something you want rather than need. Beddoe gives the example of
someone saying, "If I buy this 60-inch TV right now, I can save $200 on it." If
you never planned to get that TV in the first place, it's hardly a savings,
When the temptation for a big impulse buy strikes: "We instituted the 24-hour rule at
our house," Williams says. "Anything over a certain dollar amount that isn't
food, we have to wait 24 hours to buy. Had we not observed that ...I would have a
fire engine red wicker chair. It would have been so cute on the Fourth of July
for about 20 minutes."
See related: Credit card reform law quirk: 45 days' notice becomes 14All you need to know about credit scores and reports, An interactive look at your new credit card statement, After you yap, try a credit card app, 5 key federal laws that protect cardholders, A guide to the Credit CARD Act of 2009
Three most recent Credit account management stories: