When should you not use your credit card?

If you've just got your hands on a new credit card, you'll undoubtedly have a few ideas on what you'd like to buy. Perhaps you even applied for one with the express purpose of a certain purchase.

In the right hands, a credit card can be a useful tool. However, without careful management, it can also lead to a sticky situation where you dig yourself into debt. We've previously discussed using a credit card to build a strong Equifax credit report, but sometimes it may be better to refrain from using that shiny plastic.

When to use your credit card

The general rule with wise credit card use is to only buy what you know you can pay back at the end of the month. This includes everyday purchases, such as groceries and general household necessities.

You can also use your credit to pay off any bills partway through the month which you won't have the funds for until later. By using your credit card in this circumstance, it means that your bill won't be overdue, and that you can then before you pay off your balance at the end of the month, states Macquarie Bank¹.

"By making both payments within the due dates, you'll be in a better position to develop a good credit history," explains Macquarie. 

When not to use your credit card

One of the easiest ways to find yourself in debt is through using your credit card to make a big-ticket purchase and then only paying back the minimum amount each month. Time Magazine's Len Penzo describes this as the "snowball effect," whereby any small payments you make end up gradually growing with interest². 

"The trick to staying out of credit card debt is to make small, semi-regular purchases and pay the entire balance every month," advises Len, who lists student loans, hospital bill and wedding costs as some of the big-ticket items you'd be best to avoid buying with your credit card.

Of course, any use of your credit card has the potential to be recorded on your personal credit report, whether you're paying off your balance responsibly, or getting behind on your repayments.

One of the easiest ways to check the impact of your credit card use is to request a copy of your Equifax credit report. In addition you can also monitor certain changes through credit alert monitoring services with a subscription package from Equfiax.

Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstance before acting on it, and where appropriate, seek professional advice from a finance professional such as an adviser.

¹​Macquarie Bank, Smart ways to use credit cards. Accessed July 2015.

²Time, 3 things you should never buy with a credit card - and 1 you always should. Accessed July 2015.