If we all put a little more thought into using our credit cards, perhaps there wouldn't be such a big problem with credit card debt. U.S. credit card debt has reached almost $1 trillion, and the amount of outstanding credit card debt continues to increase each month.
Just because your credit card issuer gives you access to a sizable credit line, and just because there’s something you want to buy, doesn’t mean it’s a good time to use your credit card. Here are a few times you should leave your credit card in your wallet instead.
Don't Use Your Credit Card When You Can't Afford to Pay the Balance
This is arguably the number one time you shouldn’t use your credit card. If you can’t afford to pay for a purchase in cash, then you really can’t afford to put it on your credit card.
If you swipe your card knowing you can’t pay back what you bought, you could technically be guilty of fraud. Some creditors may use the fraud argument to keep you from having that debt discharged in bankruptcy later on.
Charging things you can’t afford is the surest way to get into debt and ruin your credit score.
Think Twice About Swiping When You Don't Know Your Available Credit
Since the CARD Act of 2009, many consumers have opted out of over-the-limit protection. This means that if the amount you're trying to charge will push you over your credit limit, your transaction will be declined. If you opted in to over-the-limit protection, though, your card issuer will allow you to go over your credit limit and you could be charged a fee.
If you’ve opted-in to have over-the-limit transactions processed, you could trigger an interest rate increase by going over your limit. Not only that, maxed out credit cards are bad for your credit score and are difficult to pay back. Always confirm your available credit before using your credit card.
Avoid Credit Card Purchases When You're Applying for a Mortgage
Mortgage lenders frown on big credit card balances when you’re applying for a mortgage. The more credit card debt you're carrying, the harder it will be to qualify for a mortgage. That's because lenders look at your credit utilization, which is how much of your credit balance is used. Lenders also look at your debt-to-income ratio, which is the relationship between your income and your monthly debt payments.
High credit card balances mean high monthly payments, and that could increase your debt-to-income ratio. It's also best to not make big credit purchases while you're being approved for a mortgage because that could also impact your debt-to-income ratio.
It’s best to save big credit card purchases at least until after you've completed the mortgage process. It's even better to wait a few months after you've closed to get adjusted to having a mortgage and other housing expenses.
Don't Use Your Credit Card to Make Yourself Feel Better
You could easily end up overspending if you’re swiping to cure the blues, especially since shopping is just a temporary fix for a deeper issue. Look for other ways to solve emotional dilemmas, like exercise, journaling, gardening, or solving the problem that’s keeping you distressed. If you're finding yourself regularly turning to shopping and spending and living beyond your means, you may also want to consider counseling. Running up a credit card balance could create additional stress and anxiety if you don’t have the money to pay the credit card balance.
Don't Use Your Credit Card When You Already Have Debt
It’s smarter to pay your existing credit card balances before you charge something else. Making new purchases before you’ve paid off old ones is an easy way to get into credit card debt. If you don’t know how much debt you have, pull out your credit card statements, tally up your balances, and develop a strategy to pay down your balances. Try to pay off your cards before you charge something else.
Avoid Using Your Credit Card When You're Intoxicated or Hungry
There are times you’re less in control of your decisions than others. If you’re intoxicated or even hungry, you could spend more than you planned. Don’t shop when you’re hungry and only carry a limited amount of cash if you plan to drink. That way you can keep your purchases, and your credit card debt, under control.
Don't Use Your Credit Card If You Don't Trust the Person or Device Handling It
With credit card skimming, thieves can steal your credit card information without you noticing. Restaurant servers have been caught passing credit cards through a skimmer in an otherwise legitimate transaction. Fraudsters are known to have placed skimming devices on ATMs and at gas pumps.
You’re not liable for most fraudulent charges, but they're still a pain to deal with. Don’t use your credit card if you think there’s a chance your card information could be compromised.