6 MIN READ
11 Times You Definitely Shouldn’t Use a Credit Card
There are good reasons you should use credit cards instead of cash, including convenience, extended warranties, and safer travel (cash can make you a target).
Reward points alone are enough reason for me. I've earned four plane tickets and a bundle of cash just this past year.
But there are some times when you might be better off paying cash or getting out the old checkbook (remember those?). Part of knowing how to use a credit card is the wisdom to know when not to use it.
The most obvious example is when you just can't handle credit responsibly.
That might not describe you, but here are some of the other times you should avoid using a credit card:
1. When You Can't Afford Something
For some people, credit cards are primarily a way to buy things they can't really afford.
These are the same people who help credit counseling companies collect big fees. Try not to join them.
Unless it's an emergency, you should only buy what you can afford to pay for when the credit card statement arrives.
There may be times when it makes sense to pay interest for a month or two.
But always carrying a balance on your cards — and therefore always paying interest — means you pay more for everything.
2. When You're at a Casino
As a blackjack dealer, I sometimes saw lines at the ATM.
The problem is, when you get money using a credit card at the ATM, the typical cash advance fee is close to 5%.
Plus, the interest rate is six points higher than for purchases. In other words, it's expensive!
And, of course, you'll only be hitting that ATM because you lost the money you brought to gamble. It's probably time to quit.
Use a credit card for casino meals, but if you’ve ever used it at the casino ATM, it may be best to just leave it home.
3. When You Can Negotiate a Better Cash Price
Armed with a few negotiation strategies, you can get a lower price on many purchases. And, in some contexts, offering a lower price in cash is the best strategy.
For example, most flea market vendors can now take credit cards, but you'll have a better shot at getting a deal if you offer cash.
Where else can you try for a better price for cash?
Small businesses and others selling small items face high credit card processing fees. They also often have cash-flow problems, so these are the most likely targets.
You can negotiate a lower price on a fridge in a big appliance store, but offering cash probably won't make any difference.
4. When You're Feeling Impulsive
Three in four Americans make impulse purchases, reports CreditCards.com.
Men are especially vulnerable when drinking — which may explain the mini guitar I bought in Nogales, Mexico.
If you're feeling impulsive, or might be going shopping after a few drinks, put a limited amount of cash in your pocket and leave the card home.
5. When You're Making a Major Purchase
I paid for our last car purchase with a credit card to get points for a free hotel room. But we had already saved the money, and I just paid off the card when the statement came.
Most of the time, paying for large purchases with a credit card is a bad idea — for two reasons.
First, you might buy more than you can afford (see number 1 on this list).
The other reason is credit card debt is expensive. Average used car loan rates have been around 3%, and no credit card can compete.
6. When You Want to Help
If you want a person or organization to get everything you give, don't use a credit card — some of your money will go toward processing fees.
Write a check for your favorite charity. You can also help small vendors by paying cash — they won't lose 2% to 3% processing the card.
Also, restaurants and other businesses can deduct credit card fees from employee tips. If you want to be nice, pay for the meal with the card and leave a cash tip.
7. When Security is Suspect
My card information has been hacked online twice — on the same website. I'll still shop online, but I’ll be avoiding that site for a while.
If I'm at a bar and see people's credit cards disappearing for long periods of time for processing, I sometimes pay cash. Taking a card out of sight is a common part of one credit card scam.
If your intuition says to play it safe — pay cash.
8. When There Are Extra Fees
I try to pay for just about everything with my credit cards, in order to get the 1% to 2% cash-back rewards.
But I won't pay the electric bill with a credit card, since the company charges a fee of least 3%.
In general, avoid using a credit card when there’s a “convenience fee” or surcharge. Even stores are now allowed to charge extra for credit card purchases.
Fortunately, few do.
9. When You're Near Your Limit
When you’re near the credit limit on your card, you risk going over and paying a penalty. Pay with cash, check or a debit card until you lower your balance.
There's another reason to leave some room on your card: You might have an emergency that requires a credit card.
For example, it's theoretically possible to rent a car without a credit card — but it can be difficult. It's often good to have a card ready, just in case.
10. When the Card Has an Ongoing Balance
There are times when you shouldn't use a specific credit card.
For example, if you carry a balance on a card from month-to-month, you'll pay interest from the day you make a purchase.
If you also have a card without a balance, use it instead and pay it off when the statement comes to avoid all interest charges. Read this post for more on this strategy.
11. When You’re About to Apply for a Mortgage
They’re aware many people now put everything on their cards to get reward points, and may be okay with a large balance or two — if you have the money to pay them off.
But they need to verify you have that ability, and the verification process can delay a closing.
It's safer to pay cash and keep card balances low until after you get the loan.
Your Turn: When do you avoid using a credit card? Do you know any good reason we left out? Let us know in the comments!
Steve Gillman is the author of “101 Weird Ways to Make Money” and creator of EveryWayToMakeMoney.com. He's been a repo-man, walking stick carver, search engine evaluator, house flipper, tram driver, process server, mock juror, and roulette croupier, but of more than 100 ways he has made money, writing is his favorite (so far).