Posted by, Mike Carlson
Having an available line of credit can be a safety net against disaster when you need it the most. Owning a credit card can help offset the cost of emergency medical bills, stacking utility bills, and starting a business. However, there are also dangerous ways to use credit that can financially hurt you more than they help. Whether they will get you deeper into debt, or can get you into legal trouble, the following three things should be avoided when you reach for your credit card.
Never Withdraw Cash from an ATM Using a Credit Card
Fees vary based on your credit card company, but most credit card cash advances carry an up front fee of 2% to 4%, which is added to the amount you withdraw. In addition, you are charged a fee by the bank that owns the ATM where you made the withdraw. Most credit cards carry a much higher interest rate on cash advances than on purchases you make using the card and no grace period, meaning you begin to pay interest on the cash immediately after withdrawing it from the ATM. However, the potentially most damaging aspect of using a credit card for a cash advance comes later in the month.
Most credit card companies will not apply any payments you make on your balance to the cash advance until you have paid back every purchase you make. So, let’s assume that your credit card carries an 8% interest rate on purchases, but a 20% rate on cash advances, and you have $200.00 in purchases and a $100.00 cash advance on your account. Until you have paid off the $200.00 in purchases, none of your payments will be applied towards the cash advance. So, you’ll be paying more interest every month on the $100.00 cash advance than you will on double that amount in purchases.
Always use your debit card to get cash from an ATM. If you have a debit and credit account with the same bank, be careful that you don’t accidentally withdraw cash on your line of credit, especially if you use the same PIN on multiple cards.
Never Gamble on Credit
Despite the fact that most online gambling sites no longer accept credit card deposits, and major credit card players like Visa backed out of the online gambling market years ago, some financial institutions still allow you to process credit card deposits at gambling sites. But far more common is the practice of obtaining a cash advance at a brick and mortar casino, and using the funds to gamble. Hopefully, you already know the dangers of withdrawing cash on your credit card for any reason. However, gambling with a credit card carries many other potential dangers.
Gambling on credit is, of course, making wagers with money that you might not be able to afford to lose. Doing so is also what many experts claim as being one of the many signs that you might have a gambling problem.
It’s far too easy to think that you can recover from a losing streak with just a few hundred dollars more, and the 20% interest rate on a $500.00 cash advance certainly doesn’t seem as bad as the interest on $2,000.00. However, if you choose to gamble, do so responsibly with money that you can afford to lose, not a card that you might later need for an emergency.
Avoid Using Your Credit Card at Unsecured Online Sites
Nearly everyone that uses a credit or debit card regularly at online sites will, at some point in their life, be the victim of a scam or online identify theft ring. While many sites offer a safe and secure payment processor, there are also sites that exist only to steal your information – and these scammers thrive on credit card transactions.
There are several ways to check to make sure that a site accepting credit card payments is safe and secure. For example, check to make sure the address bar includes https instead of http, like the following:
- https://google.com/, instead of
- http://google.com/
The added “s” means that the site is secure, and is present on all major eCommerce sites that accept credit card payments. Many sites also include a small security padlock in the bottom right corner or near the address bar. Finally, avoid purchases at online sites that do not have certification from a security company like Thawte or VeriSign.
While credit cards are an excellent way to build your credit and help when you need some extra cash during the month, there are several ways that using a credit card can damage your finances. Credit card companies typically benefit when you take out a cash advance, but have no way of determining whether you needed the cash for an emergency or a late night trip to the bar. In other words, it’s up to you to use your credit card safely and responsibly – and avoid the dangerous activities that can leave you deeper in debt than you can handle.
