5 things you should avoid putting on a credit card
Getting a credit card is a lot like getting your driver’s licence – it gives you some serious freedom, to an extent, of course. While both open up doors to independence, providing the ability to go where you want and do what you want, they still come with a fair amount of responsibility.
That said, there are certain purchases that if paid using your credit card aren’t good for improving your finances. Instead, these types of purchases can encourage bad spending habits and it’s recommended they are avoided.
1. Home expenses
Home expenses such as your mortgage, gas, water and electricity bills are predictable charges of which you can expect each month. Ideally, your paycheck should be able to cover all of these expenses as they come. However, choosing to pay these bills with a credit card can tempt you to spend outside of your budget, making your rack up unwanted debt relatively quickly. If you’re paying home expenses with a credit card because you want the rewards points, be sure to repay the amount you’ve spend from your savings straight away. Of course, if you think you’ll be tempted to overspend, you should use a debit card linked to your transaction account instead.
This category also includes any renovations you are making on your home. Instead of rocking your credit score by over extending yourself by buying everything on your credit card, consider getting a special renovation loan (which has a much lower interest rate) on top of money that you have already saved to make up any shortfall in your budget. It’s also recommended to read the Beyond Bank article on how not to blow the budget during your home renovation.
You might think it’s a good idea to pay your taxes off via your credit card, but think again! Technically, yes, the government does give you the option to pay with a card, but you risk going into debt and all for nothing as not all tax payments are eligible for reward points! On top of this, taxes are sometimes also considered a cash advance which charges a rather hefty transaction fee and higher interest rate.
3. Purchasing a vehicle
A car is a big purchase – there’s no surprise there, in fact that’s likely why you thought to put it on your credit card! However, a purchase like this only brings you closer to your credit limit, or even max it out.
Additionally, a big purchase like a car increases your credit utilisation ratio which also hurts your score. This is one of those purchases you want to have the money or loan for up front otherwise you will incur penalty fees and a bad credit rating should you struggle to make payments on time, which is difficult when you’re repaying your loan with the interest rate of a credit card.
They say travelling is good for the soul, but it’s best you have the money for the trip before you leave. Now, some might dispute this as using credit can help protect you whilst on a trip in the event something goes wrong as some cards provide free travel insurance if you buy your flights with your credit card. And it can be used for some aspects of your holiday, but it’s best to have your holiday well planned out in order to avoid going into debt over it. You want the memories of the holiday to be about the trip itself, not the bills it caused in result.
5. Bar tabs
You only meant to have ‘just one’, but once that tab is open it’s too easy to get carried away. Fun nights out are technically considered a luxury, so you have to ensure that you can afford it before you go out. Trust us, you don’t want to go into debt because that last tequila shot persuaded you into purchasing a round for the entire bar.
Good purchases to make with a credit card
We thought we’d wrap up with a little context regarding the credit card purchases that have the go-ahead for! If there is one golden rule everyone should take away from all this is that you should not spend outside of your means. A credit card is meant to support you so long as you can responsibly pay it off. Stay within your means, look for the best credit card deals and save up for the bigger purchases, this way you won’t find yourself in a financial rut!
If you need help sorting your everyday finances, play around with our tools and calculators to help you plan and save.