by Lyle Daly | Updated July 27, 2021 - First published on July 1, 2019
Many or all of the products here are from our partners that pay us a commission. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.
This definitely shouldn't be your reason for getting a credit card.Image source: Getty Images.
As useful as credit cards can be, they can also tempt consumers into making poor financial decisions. After all, it's easy to overspend when you have a high credit limit and can make low minimum payments on whatever you borrow.
According to our research, consumers aren't just getting roped into overspending; many of them specifically get credit cards to make purchases that would otherwise be out of their price range. Let's look at how common this practice is -- and why it's one of the worst ways to use your credit card.
Tips and tricks from the experts delivered straight to your inbox that could help you save thousands of dollars. Sign up now for free access to our Personal Finance Boot Camp.
By submitting your email address, you consent to us sending you money tips along with products and services that we think might interest you. You can unsubscribe at any time. Please read our Privacy Statement and Terms & Conditions.
In our survey on credit card habits, we asked consumers their top reasons for getting a credit card, and 35.9% of respondents said that one reason was to make purchases that they otherwise could not afford.
While this wasn't the most common reason to get a credit card, it was one of the top five, which is a sign that many consumers see credit cards as a reasonable way to finance purchases and pay them off later. This couldn't be further from the truth.
There are two reasons why you should avoid ringing up a balance you can't afford on your credit card:
When you put a purchase on your credit card and don't pay it off by the due date, your credit card company can start charging you interest. At that point, you're essentially paying extra every month on top of the product's original purchase price. And with credit cards, you're looking at an average interest rate of about 18%.
That's why you should always ask yourself: Is it really worth paying more for a product just so I can have it now?
And we rarely stop at one purchase, either. Once you charge one purchase you can't afford on your credit card, it's easy to justify another, and another.
You may think that won't happen to you, but our research found that 60% of consumers had credit card debt, and the average amount among them was $5,937. Most people don't suddenly decide to charge $6,000 they can't afford to their credit card. It happens gradually, with cardholders sinking deeper and deeper into debt.
The lone exception to the rule above is 0% intro APR cards. If you need to finance a purchase, then these cards are a smart way to go about it, assuming you'll be able to pay off your balance within your card's introductory 0% interest period.
That being said, I'd recommend thinking long and hard about whether it's a purchase you absolutely need to make. Even though you can finance it without paying interest, you'll still be taking on debt. And if some financial curveball should make it impossible for you to pay off the balance before the 0% interest rate expires, you could be hit with huge interest charges on your outstanding debt.
If you've put purchases you can't afford on your credit card before, then it's important to change your spending habits. That's obviously easier said than done, but it's something anyone can accomplish. You just need to switch from a spender's mindset to a saver's mindset.
Spenders buy what they want and then figure out how they'll pay for it. Savers put money away first and then pay their expenses with their savings.
I used to be firmly in the first group, so I know what it takes to change how you operate -- and what a challenge it can be. Here's what I found works best:
There are plenty of benefits to using a credit card. It can boost your credit score. It can help you keep track of all your spending. And many of the top credit cards have a long list of perks, such as rewards and purchase protections.
What ultimately makes the difference in whether your credit card helps you or hurts you is how you use it. To get the most out of a credit card, you need to pay the bill in full every month and not consider it your ticket to purchases that are out of your price range.
If you have credit card debt, transferring it to this top balance transfer card secures you a 0% intro APR into 2023! Plus, you’ll pay no annual fee. Those are just a few reasons why our experts rate this card as a top pick to help get control of your debt. Read The Ascent's full review for free and apply in just 2 minutes.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters.
Copyright © 2018 - 2021 The Ascent. All rights reserved.