What are the worst things you can do with a credit card?

by Guest

There are not many Americans who would willingly hand over their credit cards and go back to just using cash, but when is it a bad idea to resort to plastic?

Credit cards have a whole host of benefits, providing convenience as well as being a much lower risk that touting around a wad of dollars, but sometimes using a credit card just isn’t a good idea.

Somehow, buying something on plastic doesn’t have the same feel to it as seeing the dollar bills physically handed over and with large credit limits, it can be very easy to overspend.

Financial experts suggest that if you do not have a plan about how you will be able to repay the bill and do not have at least half of the money available in cash, then you should step away from the cash desk.

Hovering close to your credit limit on your credit card will also lower your overall credit score, which could mean that the lender hikes up your interest rate. It is always a good idea to have a least a couple of hundred dollars spare on credit cards. If you need the money, then get your lender to either up your limit or get a new card, rather than max out your existing card.

Reward credit cards are another relatively recent innovation that are growing increasingly popular. It can be very addictive to use the card to pay for purchases to simply qualify for more rewards.

Whilst this can be a good way to get goods for free, it is essential to pay the balance off when the bill arrives. If you can’t do this, don’t use the card. The rewards earned will be far less than the interest you end up paying.

A credit card can also be an unwitting accomplice to impulse buys, which very often are expensive and unnecessary and frequently end up unused. Savvy spenders use the 24 hour rule – walk away and if you still want the item 24 hours later (and can afford it), then go back and get it.

On the same subject – if you are enjoying a night out on the tiles, leave the credit card at home.  A few drinks can make a splurge on a credit card seem like harmless fun and can ruin months of careful budgeting.

The internet is another place where credit cards are very useful and can make bargains accessible, saving a lot of money.   However, using credit cards on unsafe sites leaves you open to identity fraud and theft, so caution should be exercised at all times. Do not use your card on any site that has an unusual foreign extension unless you are absolutely certain it is legitimate.

Flea markets are another place where it is actually safer to hand over cash than provide an unknown and untraceable stranger access to your credit card details.

Withdrawing cash from an ATM using a credit card is another big no-no, as the additional charges make this a very expensive way of accessing cash. Using a credit card in a foreign ATM is even more costly and can provide a nasty shock when the bill arrives.

Opting to use a credit card on holiday abroad is not recommended in general because there will be a fee levied per transaction, as well as the interest. Additionally, cardholders will be hit with poor exchange rates – much worse than could be obtained by getting some local currency.

It is also worth taking a long hard look at anything you plan on spreading the cost for over several months. Would the interest charges be cheaper if paid for in a different way? For example, car insurance may be cheaper paying the firm in instalments rather than coughing up hefty credit card charges.

This guest post is brought to you by MoneySupermarket.com.

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