8 times when you shouldn't use your credit card

Your plastic friend is not always your best bet.

A credit card can be a valuable friend, offering a bit of extra protection to your purchases as well as a bit of breathing space before you have to pay them off. However, there are times when using your credit card is the worst thing you can do.

#1 When you need a bit of cash

We’ve all been there, out and about when you find yourself short of a bit of cash. Perhaps you are already getting close to your overdraft limit, so you don’t really want to use your debit card to take some money out.

It can be very tempting to take money out from an ATM using your credit card, but it’s a bit mistake to do so. Not only will you be charged a fee for taking the money out, usually 2% to 3%, but you’ll also immediately start paying interest on that cash.

And not just any rate of interest either, but often 25% or more!

#2 To pay the mortgage

At the start of the year, homeless charity Shelter revealed some astonishing research on just how many households have used their credit card to pay off their mortgage bill over the preceding 12 months.

The charity found that up to a million households had used their credit cards to pay their mortgage balance over the preceding 12 months, the equivalent of 6% of UK homes.

Borrowing to meet housing costs in this way is completely unsustainable, and puts you on the road to financial disaster. If you’ve been using your card in this way, you need to get some advice to help you clear your debts. There are stacks of great organisations that can help, absolutely free, including Citizens Advice, National Debtline and the Consumer Credit Counselling Service.

#3 When you’ll be using the wrong card

If you have both a balance transfer credit card and a separate card for spending, the last thing you want to do is mix up what you use them for. That’s because of negative order of payment, a sneaky trick that card providers use, whereby your monthly payments go towards your most cheapest debts first (say the 0% interest period on balance transfers) leaving you to rack up interest on your more expensive debts (for example purchases, if the 0% period has finished).

This trick is on the way out from January, but that still leaves you plenty of time to rack up interest if you’re not smart in how you use your cards.

Alternatively you can stick to all-round credit cards, which offer the same period of 0% interest on both purchases and balance transfers.

#4 For the sake of a store discount

There have been countless occasions when I’ve been stuck behind someone in the queue at a shop, and they have signed up to a store credit card without batting an eyelid, all for the sake of a few pounds off their shop.

However, they almost never pay any attention to the fact that in most cases, the rate of interest on such cards is astronomical.

That’s all good if you pay your bill off in full every month, but if you don’t you could end up spending a fortune in interest payments. Even worse, some cards charge you £10 if you don’t use them for three months!

#5 If you don’t know how you’ll pay it off

You should always have a plan for how to clear your credit card balance. That doesn’t mean you should only ever spend what you can immediately pay off in a single payment – that’s why cards offering 0% interest on purchases for a year exist, to give you the opportunity to spread your payments over a longer period.

However, you don’t want to just rely on making the minimum payments. With some cards, sticking to the minimum payments means you’ll take more than 100 years to pay off your debt!

#6 If you’re going to max out your credit

This does your credit record no favours.

You’re better off getting more credit and staying below the limits, rather than having less credit and consistently hitting the limits set, as it makes you look desperate.

#7 When you’re abroad

 It can be very tempting to put all those souvenirs on your plastic friend, but it’s not a smart idea. Many credit card firms slap a foreign usage charge on your spending, with fees in the region of 3%. However, there are a select band of cards which you can use overseas which you won’t be charged for.

You can find out more about spending overseas in A new credit card to use abroad.

#8 For the sake of reward points

I’m a big fan of Tesco’s Clubcard scheme – I do all my shopping there, and put pretty much all of my monthly spending on my Tesco Clubcard credit card in order to collect as many points as I possibly can.

However, I only put money that I was going to spend anyway on the card. It’s not an excuse for me to spend even more cash each month, just for the sake of racking up an extra Tesco voucher. You still have to show some discipline.

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