Using a Credit Card Doesn't Always Pay. Here's Why

by Maurie Backman | Updated Nov. 10, 2021 - First published on April 29, 2021

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A woman handing money to a cashier at a coffee shop.

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Before you swipe a credit card, consider the costs involved.

As a general rule, I like to put as many expenses as I can on my credit cards. That way, I get cash back and other rewards for purchases I would have made anyway. It also helps me better track my spending, since I tend to check my credit card balances frequently. But it doesn't always make sense to use your credit card -- and it could cost you.

It's all about the service charges

Generally, you won't be charged anything extra when you swipe a credit card to pay for a retail purchase, restaurant meal, or cell phone bill. But in certain situations, you'll pay extra fees for using a credit card.

When my children attended preschool, for example, paying by credit card would've added an extra 3% to my bill. Since I could've earned a maximum of 2% in cash back, it wasn't worth going that route. Many summer camps have a similar policy -- you can use a credit card, but you'll pay extra for it.

Similarly, if you owe money to the IRS, you can pay your tax bill using a credit card. Many people may be tempted to do so if they can't cover their entire tax obligation at once. But if you pay your taxes with a credit card, you'll be charged a processing fee that will generally outweigh the rewards you get from your card. Plus, the IRS will let you pay off your tax bill over time -- you don't need a credit card to spread out your payments.

Crunch those numbers

It often makes sense to use a credit card. But watch out for situations when you'll be charged extra. The good news is that merchants can't just throw in extra fees on the sly. Rather, they're required to inform you what you'll be charged. From there, you can run the numbers to see what makes the most sense.

If you have a credit card that offers you 3% cash back and it will cost you a 2% fee to charge camp tuition, it's worth using your card. You'll still gain more in rewards than you'll lose in fees. Also, a lot of credit cards reward customers generously for gas fill-ups. If a local gas station accepts credit cards, but charges a higher price per gallon, you'll need to run the numbers to see whether you'd come out ahead. (And if you're wondering whether it's legal for merchants to charge extra for customers who use a credit card, the answer is yes. In many states, it's legal, provided those extra charges are disclosed up front.)

What about debit cards?

Purchases made with a debit card are generally treated the same as those made with cash or a check. As such, you shouldn't have to pay processing fees.

I use credit cards often and aim to squeeze as many bills as possible onto those accounts to rack up reward points. But in some cases, I know I'm better off paying cash. Ultimately, the key is to do some number-crunching to see what makes the most sense on a case-by-case basis.

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