The Only 2 Expenses You Should Never Put on Your Credit Card

A woman placing cash in a check folder while sitting at a table in a restaurant.

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Not sure which purchases should and shouldn't go on your credit card? This will make it easy.

There's plenty of advice about expenses you supposedly shouldn't pay with your credit card. Unfortunately, these lists are often far longer and more complicated than they need to be.

The truth is that a credit card is the best payment method for almost all your spending. It helps build your credit score, and rewards credit cards earn cash back or points on each purchase. So it makes sense to earn as much in rewards as possible. As long as you're not running up a balance you can't pay off, there's no drawback to paying by credit card.

There are, however, two exceptions to the rule, and in both cases, it's because of the cost involved. Here are the only two expenses you shouldn't put on your credit card.

1. Money transfers/cash-equivalent transactions

When you use your credit card to send or receive cash, the card issuer usually considers it a cash advance. This costs you in several ways:

  • Credit cards charge cash advance fees, which generally range from 3% to 5% of the transaction amount.
  • The card issuer can charge you interest on the cash advance immediately. Unlike purchases, cash advances don't have an interest-free grace period. Cash advance APRs are also often higher than purchase APRs.

It's probably obvious that using your credit card to take cash out from an ATM counts as a cash advance. But this is far from the only type of transaction that's considered a cash advance. Here are some other common examples of transactions that can qualify:

  • Money wires
  • Foreign currency purchases (or traveler's checks)
  • Gambling transactions
  • Cryptocurrency purchases
  • Credit card checks sent to you by the card issuer

Sometimes you'll get a warning from the merchant before making a purchase that could be a cash advance. For example, many money wiring services mention this in a disclaimer and recommend paying by debit card or bank account transfer instead.

That doesn't always happen, though. When in doubt, it's better to pick another payment method to avoid a costly credit card mistake.

2. Purchases with excessive credit card fees

You'll also find certain types of purchases where the merchant charges you extra for using a credit card. Unlike a cash advance, where it's the card issuer that charges the fee, here it is the merchant. The merchant must disclose the amount of the fee before you make the purchase.

You could simply use your debit card or pay cash whenever there's a credit card fee. That works fine, but you may want to consider your options a bit more carefully if you have a rewards credit card. In that case, you should compare the amount of the fee to how much you'd earn back on the purchase.

Here's a simple example -- paying taxes. The Pay1040 site charges a 1.87% fee to pay by credit card. If you have a credit card that earns 1% back, there'd be no reason to use it. If you have a credit card that earns 2% back, you could come out ahead, even after taking the fee into account. It's only a very small amount, but it means you can use your credit card without taking a loss.

The key is to know how much your credit card earns in rewards. Then you can figure out if a credit card payment fee is worth it with a bit of simple math.

The best payment method for most expenses

You can and should put the vast majority of your expenses on your credit card. The only times to avoid using your credit card are when it will cost you money. That's usually either because it's a cash advance or the merchant has tacked on a hefty surcharge.

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