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.

Image source: Getty Images

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.

Our credit card expert uses this card, and it could earn you $1,148 (seriously)

As long as you pay them off each month, credit cards are a no-brainer for savvy Americans. They protect against fraud far better than debit cards, help raise your credit score, and can put hundreds (or thousands!) of dollars in rewards back in your pocket each year.

But with so many cards out there, you need to choose wisely. This top-rated card offers the ability to pay 0% interest on purchases until late 2021, has some of the most generous cash back rewards we’ve ever seen (up to 5%!), and somehow still sports a $0 annual fee.

That’s why our expert – who has reviewed hundreds of cards – signed up for this one personally. Click here to get free access to our expert’s top pick.

The Motley Fool owns and recommends MasterCard and Visa, and recommends American Express. 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 views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Latest Markets Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More