What are the Worst Things to Buy on Credit?
People use credit cards for different purposes. Some people use them for travel costs, which is beneficial in terms of cashback incentives and earning points. You can use these points to make several purchases. On the other hand, there are certain things which you should buy using credit. In today's article, we will discuss these things.
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Everyday expenses
It is always a bad idea to use credit cards for daily expenses. For example, if you use credit for paying telephone bills, internet cable, or purchase food, you will not be able to cover the monthly payments. However, if you can pay on time, you may use credit to buy essential household items.
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Car
Because credit cards have high processing fees, it is not a good idea to buy a car on credit. Against, it comes with higher interest rates, which can cripple your financial status. Some reports highlight that purchasing a new car on credit is even expensive than applying for a personal loan.
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Student loans
The best way to pay off your student loans is putting extra money into your savings account. You can then use this money to pay off your loans. Some other options include deferment, a loan forgiveness plan, and an income-based payment plan. It is crucial to avoid using your credit to get rid of your payment loans, and the reason is higher interest rates.
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Shopping
Everyone needs to buy clothes, shoes, phones, and other things from time to time. We recommend you to pay in cash if you want to buy any of these things. If you don't have cash, then wait for some time and save money.
Paying with your credit card will increase the burden on your shoulders at the end of the month. Imagine you have a health emergency, and the issuing company is calling you to make payment. The financial load will give you stress, and if you miss making payments, you have to pay double next month.
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Taxes
Remember, paying your IRS with a credit card is disastrous for your financial status. The issuing company will charge you for an additional fee, and that could be up to 5%. For example, a $5,000 tax bill can cost you over $500 in upfront fees, which may not be affordable for you.
Some people use credit to get cash at a very high-interest rate. Although it will relieve you in the short-term, you will suffer from the consequences in the longer run. For example, if you need $5,000 in cash with an overall interest fee of $2,000 and the period of payment is ten months, you will pay $700 instead of $500 per month.
Final words
Financial experts do not recommend using credit to purchase items or things unless and until there is an absolute necessity. Even if you are using credit cards, negotiate with the issuing companies to increase the credit limit. It allows you to lower interest rates if you use the credit appropriately.
Next: Benefits of Financial Literacy
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Thomas Moore is a proud American with a Bachelors Degree in Business Administration from the University of San Diego. He has been in the financial industry for many years holding numerous licenses in multiple states. He currently helps operate cashkingco.com and is our resident expert on all things finance and a great writer. Thomas is also an avid outdoor enthusiast that loves fly fishing streams in the Western United States. LinkedIn Profile |