At O1ne Mortgage, we prioritize consumer credit and finance education to help you make the best financial decisions. While credit cards offer numerous benefits, such as rewards, purchase protections, and the ability to pay off balances over time, there are instances where using a credit card may not be the best option. Here, we explore various scenarios where alternative payment methods might be more advantageous.
### Rent or Mortgage Payments
Paying your rent or mortgage with a credit card isn’t always feasible, as landlords typically prefer checks, cash, or even Venmo payments. If your landlord does accept credit cards or you use a third-party service, be sure to review the terms carefully. Payment processing fees, often around 3% of the payment amount, can quickly add up. These fees can outweigh any rewards you might earn, making it a costly option for such a significant expense.
### Utilities
Some utility providers charge processing fees if you pay your bill using a credit card. While these fees might only be a few extra dollars, you can easily avoid them by making one-time or automatic payments directly from your bank account. This simple switch can save you money over time.
### Income Taxes
Income taxes can be a significant expense, especially for contractors or small business owners who may not have paid enough quarterly taxes. The IRS provides a list of approved payment processors for paying taxes with a debit or credit card, along with their associated fees. As of August 2023, these fees range from 1.85% to 1.98% for credit card payments. If you can’t afford your tax bill, consider a low-rate personal loan or an IRS payment plan instead of incurring high-rate credit card debt.
### Medical Bills
Medical bills can be unexpected and expensive. While paying with a credit card might seem convenient, it can lead to high-interest debt unless your card has an introductory 0% APR offer. High balances can also increase your credit utilization ratio, potentially hurting your credit score. Negotiating your medical bills and setting up a payment plan with your provider may be a better option. Nonprofit hospitals often offer free or discounted services through charity care programs, but you may need to ask about these options.
### Cash Withdrawals
Using your credit card for a cash advance at an ATM, with a convenience check, from a bank teller, or via your card’s app can be a quick way to get extra cash. However, cash advances should generally be a last resort due to additional fees and higher APRs. Interest on cash advances starts accruing immediately, even if you regularly pay your credit card bill in full.
### Peer-to-Peer (P2P) Payments
Popular P2P payment platforms like Cash App, PayPal, and Venmo allow you to link a credit card to your account. However, you may be charged around 3% of the transaction amount for each transfer. Card issuers might also treat these transactions as cash advances, resulting in extra fees and interest. To avoid these costs, link and use your bank account instead.
### Online Bets
Online sports betting and gambling have become increasingly popular. Whether you can use your credit card depends on your location and card issuer. Even if it’s an option, using your credit card can be risky due to the potential for high-interest debt. Card issuers might also consider these transactions as cash advances.
### Tuition
Some colleges and universities accept credit cards for tuition and other fees, but the added payment processing fees can make this a costly option. Instead, explore different forms of financial aid, including federal student loans or scholarships. If you or your child don’t qualify for federal financial aid, review options for regaining eligibility and obtaining more help in the future.
### Get the Best Credit Card for Everything Else
While using a credit card isn’t always the best choice, there are times when it can be beneficial. Credit cards offer rewards and various cardholder benefits, such as extended warranties, purchase protections, and zero liability for unauthorized transactions. Although there isn’t a one-size-fits-all card, some cards are better suited for specific needs. Use comparison tools to find credit card offers based on your credit profile, and compare the terms, pros, and cons of each card to determine which one works best for you.
At O1ne Mortgage, we are committed to helping you navigate your financial journey. For any mortgage service needs, call us at 213-732-3074. Our team of experts is here to provide you with the best solutions tailored to your unique situation.
