It’s true: Credit cards come with lots of perks and features. But just because you can do something with your plastic doesn’t mean you necessarily should. After all, getting hit with a bunch of unnecessary costs is nobody’s idea of a good time.
To avoid this fate, you probably shouldn’t use your card to:
1. Get cash from an ATM
If you need cash right away and your checking account is running on empty, you might be tempted to use your credit card to take a cash advance from an ATM. After all, what’s the harm in borrowing against your credit line to get access to a little currency when you need it?
As it turns out, the harm comes in the form of fees — lots of them. For one thing, you’ll have to pay a cash-advance fee, which usually amounts to 2%-5% of the amount you’re withdrawing. Plus, there’s the ATM fee to consider. In addition, many credit cards charge a much higher interest rate on cash advances than the purchase APR you’re used to.
Given the astronomical expense that comes with using your credit card to take a cash advance from an ATM, it’s probably a good idea to just say “no.”
2. Charge more than your total credit line
You might think that your credit limit is just that — a limit. But it actually is possible to charge more than your total credit line. Eventually, of course, there will come a time when your issuer cuts you off for good. But generally that time won’t come until you’ve racked up some significant overlimit fees and done serious damage to your credit score.
The good news, though, is that charging beyond your credit limit is more difficult than it used to be. As a result of the CARD Act of 2009, consumers must now opt in with their credit card issuers to be allowed to exceed their designated credit limits. Because of this provision of the Act, the Consumer Financial Protection Bureau (CFPB) found that overlimit fees were “effectively eliminated” by 2013.
Still, you can give your issuer consent to allow you to blow past your limit. But given that most overlimit fees run $25-$35 a pop, you probably shouldn’t.
» MORE: How to pay off debt
3. Finance a large, unnecessary purchase
If you don’t have the available funds to purchase an item you really want, turning to your credit card for financing might be your first impulse. Again, this is certainly something you could do – but it’s probably not wise.
For one thing, most credit cards carry double-digit APRs. If you don’t pay off your balance in full at the end of the month, you’re going to get slammed with interest charges. What’s worse, they’ll keep accruing month over month. This means that a $1,000 TV could end up costing you significantly more than its sticker price by the time you’re finished paying it off. If you absolutely have to buy something that you can’t pay off in full when the bill comes due, at least use a card that offers a long 0% introductory rate on purchases.
However, keep in mind that a 0% promotion won’t solve the other problem that comes with using your card for a large, unnecessary purchase. If the item you’re coveting will eat up more than 30% of the available credit on your card, your credit score could be jeopardized. A high credit utilization ratio will do damage to the 30% of your score determined by amounts owed, and the negative effect on your overall score might be significant.
All in all, it’s usually not worth it to swipe your card for an item you really can’t afford.
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