What Items Should You Not Purchase With a Credit Card?

Credit cards offer convenience, fraud protection, and opportunities to earn rewards or build a positive credit history. When managed responsibly, they can be a valuable part of a financial strategy, facilitating transactions and providing a short-term line of credit. However, misusing them can lead to accumulating expensive debt. Understanding when to avoid using a credit card is as important as knowing when to use one, crucial for safeguarding financial well-being.

Cash-Like Transactions

Using a credit card for cash-like transactions often incurs immediate and significant costs, making these some of the most expensive ways to access funds. These include cash advances obtained from an ATM or bank, lottery tickets, gambling chips, or some gift cards. Issuers treat these as immediate loans, not standard purchases.

A cash advance usually comes with an upfront fee, commonly 3% to 5% of the transaction amount, with a typical minimum of $10. For example, a $500 cash advance could cost $25 in fees. Interest begins accruing immediately on cash advances, without the standard grace period offered on purchases. The APR for cash advances is frequently higher than for regular purchases, often around 29% or more, compared to average purchase APRs of 20% to 25%. This immediate accrual of higher interest and upfront fee makes cash-like transactions an exceptionally costly borrowing method.

Debt and Liability Payments

Using a credit card to pay existing debts or large liabilities, such as taxes, medical bills, or educational tuition fees, often escalates financial burdens. While a credit card provides immediate liquidity, it typically converts a lower-interest obligation into high-interest credit card debt.

Paying federal taxes with a credit card involves a processing fee charged by third-party processors, as the IRS does not accept direct credit card payments. These fees generally range from 1.75% to 2.89% of the payment. Many universities also levy a processing fee, often between 2.25% and 2.95%, when tuition is paid by credit card. These additional fees, coupled with credit card interest rates averaging 20% to 25% if the balance is not paid in full, significantly increase the total cost. This practice risks creating a cycle where one debt is merely shifted and amplified by higher interest and fees.

Speculative Ventures

Borrowing money at high interest rates for speculative activities like investing in stocks, cryptocurrencies, or extensive gambling introduces significant financial risk. Credit cards carry APRs ranging from 20% to 25% for purchases, and even higher for cash advances. Using such expensive credit means any potential returns must first outweigh these substantial borrowing costs.

The volatile nature of speculative markets means invested capital can be lost entirely or significantly reduced. If the investment fails, you are still obligated to repay the borrowed amount plus high credit card interest. This can quickly lead to a magnified financial loss, as you carry high-interest debt without a corresponding asset. Financial advisors recommend against borrowing to invest with high-interest credit, to avoid compounding losses.

Depreciating Assets and Non-Essentials

Purchasing items that rapidly lose value or are consumed quickly, especially if the credit card balance cannot be paid off immediately, represents an inefficient use of credit. This includes luxury goods, high-end electronics, lavish vacations, or even everyday necessities like groceries or gasoline if carried as a revolving balance.

When interest accrues on these purchases, you are effectively paying more than the item’s original cost over time, even as its value diminishes or it is consumed. For example, paying 20% interest on a vacation means the cost of that enjoyment is significantly inflated by the debt burden. This inefficiency arises from paying substantial interest on something that provides diminishing returns or is quickly used up, making the debt feel burdensome long after the item’s utility has faded.