3 things you shouldn't charge

By Liz Pulliam Weston

Even credit card lovers like me know there are times when you shouldn't whip out the plastic.

If a transaction requires you to pay extra to use a card, for example, it's typically not worth it. You also don't want to find yourself charging necessities or anything you can't pay for in full when the bill arrives.

But people don't always lead perfect financial lives. If you find yourself reaching for your credit card in any of the following three situations, here's what you need to know.

Your mortgage, car note or student loan is due

These lenders typically don't accept plastic directly. But a San Francisco company called ChargeSmart offers credit card users the option to charge many mortgage, auto loan, student loan or utility payments. The cost: $4.95 plus 2.29% of the transaction amount.

The fee usually wipes out any benefit your rewards card might offer, and carrying that balance on your credit card increases the costs.

If you don't have the cash to pay your bill, ask yourself some questions:

Is this a one-time event, or is it putting off the inevitable? Ideally, you'd have savings to help you through any rough patches, such as unemployment, an extended illness or unexpected expenses. If you don't, then borrowing money to pay your mortgage or other loans may not be a disaster -- as long as the need is short-lived.

If you've been without a job for months, if your mortgage payment is more than 30% of your gross income or if your car expenses exceed 10%, your problems are more than temporary. Borrowing any more will just dig a deeper hole. It's time to get your expenses in line with your income, even if that means drastic changes such as moving or selling your wheels.

What are your other options? If your need is short-lived, you may be able to borrow from other, cheaper sources. That's not to say you should, but now we're just exploring options. For example:

• You could borrow from a home-equity line of credit to pay your mortgage or other expenses.

• Friends or family members might be willing to give you a loan. For guidance through this potential minefield, see "The right way to loan money to family members.")

• You could borrow from a cash-value life insurance policy. (See "How life insurance pays -- before you die.")

• You could get a loan from your 401(k) at work. I'm not a big fan of these loans because of the risk that you'll lose your job and your loan will turn into an inadvertent withdrawal -- read "7 ways to mess up your 401(k)" for details -- but it is a relatively cheap source of cash in emergencies.

Another thought: If your student loan payments are onerous, contact your lender for more-affordable payment options. Many offer income-contingent or graduated-payment options, and you may be able to get a deferral or forbearance if you're in dire straits.

If your mortgage or car loan payments are too high, your options are more limited, but some lenders may offer to lower your payments, or you may be able to refinance to a lower rate if you have sufficient equity.

If you run through your options and decide a credit card really is your best route, consider these tips:

• If you have a low-rate card, use that, or see whether one of your existing, unused cards has a low-rate balance-transfer offer that includes a low, capped balance-transfer fee (preferably $75 or less). Or look for a new card that will give you a low introductory or balance-transfer rate (again with a capped fee).

• If you transfer a balance, don't make further charges to that card, as those may incur a much higher interest rate.

• Set up automatic payments to pay off the bill. Making the payments automatic helps remove the human tendency to put off doing what's good for us, including paying off our debts.

Preventive maintenance: Create a spending plan that allows you to live below your means (check out "The 60% Solution") and build an emergency fund to get yourself through tough financial times.

Your tax bill is due

You might be tempted to charge your tax bill if:

• You don't have the cash handy.

• You have a rewards credit card and want the frequent-flier miles, cash back or other goodies.

The Internal Revenue Service has accepted credit card payments since 1999, and the option is available from many state and local tax authorities as well. Payment with plastic is a popular option. In 2008, the IRS has accepted 2.4 million credit and debit card payments, up 12.3% from the same period in 2007.

Continued: 'Convenience fees'

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