5 Things that should never go on your credit card - and 4 that always should

Credit cards win lots of points when it comes to convenience. And with the introduction of PayWave, it seems like you can use credit cards to pay for just about anything; from your morning coffee to a round the world cruise. For many of us Covid-19 has changed the way we use cash.

For some things credit cards really are essential, for other things, there are so many benefits that you just wouldn’t pay any other way. There are  4 things that Sherpa says should always go on your credit card, but first here are some things that you just shouldn’t put on credit. 

Sherpa’s top five things that should never go on your credit card.

1. Uni fees

HECS may seem like a huge burden to carry into your life post uni, but you should never go into debt to avoid it. Here’s why; there are lots of expenses associated with a uni education. Living expenses, rent, entertainment all need to be added to the cost of tuition and books. Of these, only tuition attracts the cheap money on offer from the Government. Take it before you borrow for anything else. Even if your parents are happy to foot the bill; there are almost certainly better ways they could spend the money on you. Like helping you buy your first home.

2. Taxes

Most of us at some time will find ourselves with a tax bill we’re not prepared for. It can be tempting to put off filing your tax returns, but don’t ever do this. It is a much bigger offence and more costly to not file than to file and not pay.  If you don’t file or file late, the ATO can impose penalties which can really mount up. Paying late just attracts interest. Lodge on time and deal with the payment problem later.

Conveniently, the ATO now takes credit cards. But before you reach for your credit card, think about this. If you are late paying your tax bill the ATO applies interest (called the general interest charge or GIC). This rate varies from time to time, but because it is based on a fixed premium over the rate banks can borrow, it is usually much lower than credit card interest rates.  It is currently around 7.04% which compares to up to 20% with a credit card.  Sometimes they may even agree to waive the GIC.

If you have a problem paying your tax bill, talk to the ATO to arrange a payment plan. You can read more about what happens if you don't lodge your tax return here.

3. Insurance Premiums

Insurance renewals seem to come around with monotonous regularity. Sometimes, it can be difficult to find the money. Insurance companies make this easy by taking credit cards. In many cases you will be slugged with a credit card surcharge as well as the interest and loss of interest free days associated with paying off the bill over a number of months. There is often a better way.

Most insurance companies now allow you to pay by the month. They usually charge more for the privilege, but this can often save you money compared to using your credit card. 

As a rough rule of thumb, if the surcharge for paying by the month is less than 10% of the premium, you will generally be better off paying by the month compared to using a credit card and paying it off over a year. This can also help with budgeting.

4. A big wedding

With the average cost of an Australian wedding heading above $50 000 (according to One Fine Day), it’s easy to see how many couples resort to their credit cards and start married life with a mountain of debt. There’s a lot to be said for the old tradition of the wedding being paid for by the bride’s family.  But if you’re not so lucky, a little planning can go a long way. It will be an even more special day if it doesn’t cramp your future style.

5. Holidays

Holidays give us that much-needed break time for stress relief. But if you finance your trip with a credit card (without the means to pay it off straight away), you will return to the difficulties of paying it off - rather than basking in the afterglow.

If you pay for your holiday on credit card, it can cost you more than the frequent flyer points and free insurance you accrue. Instead, adjust your budget to include an allowance for holidays. Try transferring the money to a dedicated savings account and enjoy the feeling of anticipation!

Think about camping, staying at hostels, and visiting family and friends as ways of fitting in a getaway that won’t blow the budget

Using your credit card to pay major bills is great and can help with expense tracking. Earning rewards points can be an added bonus, but credit cards as a means of finance is expensive and will most often come back to bite you.

Some things were just never meant to go on a credit card. What items do you refuse to put on credit card?

Now to the things you should always use a credit card for.

4 Things you should always use a credit card to buy

1. Car rentals

Renting a car is pretty difficult without a credit card. Many rental car companies simply won’t do it any other way. For rental companies, a credit card helps them identify you. But there are a number of practical advantages.

Rental car companies will generally charge a deposit to your card. This is just a reservation of the amount so it doesn’t show up as a charge, but it can affect the amount of your credit limit that you can spend.  They can’t do this with a debit or EFTPOS card.

Your credit card insurance may also cover things like the excess on the insurance cover provided with the car for accident damage. Rental car companies make money by charging a lot for extras such as insurance called Collision Damage Waiver (CDW). This can really add up for long rentals.  If your card covers this, it can save a lot of money. Check with your card issuer.

2. Hotels

When traveling, it’s comforting to know that your hotel room will be there if you arrive late. Most hotels will hold the room for you if you give them your credit card number. They will only charge the card with a cancellation fee (often the first night’s accommodation) if you don’t turn up. This can’t be done with a debit or EFTPOS card.

3. Travel

Paying for travel, particularly flights with a credit card has a number of advantages. It gives you protection against the airline or tour company going out of business between your booking and when you actually travel.  If this happens you can generally get a refund form the credit card issuer. If you had paid cash you would become a creditor and have to get in line with the other creditors of the travel company.

Many credit cards include travel insurance if you pay for your flights and a certain portion of the total trip costs on credit card. This can be invaluable saving time and money compared to separate travel insurance.

Beware of credit charge surcharges. Airlines are one of the biggest offenders in imposing whopping credit card surcharges. Sometimes these are levied per flight or per sector and per passenger so can really add up. Make sure these charges don’t outweigh the other benefits.

4. Online

Online shopping is the natural home of the credit card offering convenience and security.  Where a transaction is processed to your card that you haven’t approved or is fraudulent, you have the right to have the transaction reversed by your card issuer. This is known as a chargeback and may also apply to some debit card transactions. A number of card issuers have introduced a Zero Liability feature which provides additional security.

If you use PayPal and link your credit card to your PayPal account, you get to double dip. PayPal provides buyer protection as part of its service and then you get the protective benefits of using your credit card. Remember, this is not meant to deal with disputes between you and the merchant, for example, if you think the goods are substandard.

For these transactions, your credit card offers significant advantages over cash, cheque or debit cards. But if you think you won’t pay off your credit card bill in full on the due date, then consider those charges and costs and factor them in to your Budget Plan

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