High gas prices lead buyers to use credit cards. Is that wise?

The price of gasoline, like the price of car insurance, or auto repairs, seems to rise nearly every day. While inexpensive by European standards, fuel prices in the United States have tripled in the last six years and have had a decidedly negative affect on the economy. The United States is a country with little public transportation and log distances between cities; we are a nation of drivers. Prices at or above $3 per gallon have led more than one consumer to wonder, “How am I going to pay for this?”

For many consumers, the answer is increasingly, “Use a credit card.” People who have always paid with cash in the past are increasingly taking to using their Visa or Mastercard to fill their tanks, with good reason. Some of the larger sport utility vehicles on the market now require as much as $100 worth of gasoline to fill the tank, and few consumers carry that sort of cash around with them anymore.

But is it a good idea to use a credit card to pay for gasoline? There are some reasons why it may be beneficial and some reasons why it may be a terrible idea.

The bad reasons really stick out. The average American household has nearly $10,000 in credit card debt. This debt has an average interest rate of nearly 20% per year; few people pay their bills in full each month. It’s very expensive money. That being the case, buying gas with your credit card, knowing that it is simply going to be added to your existing debt, is a bad idea. In fact, it makes the high price of gas even higher. Not only are you paying $3 per gallon for it, but you will also be paying 20% interest on that $3 for an indefinite period of time. That makes $3 gasoline
$3.60 gasoline in a year’s time. If you can’t afford to pay cash, then paying with plastic will only make it worse.

There are some circumstances where it may make sense to use a credit card, however. First and foremost is your ability to pay your bill, in full, each and every month. If you can do that, or do that already, you may actually find an advantage in paying with plastic. Some credit cards, such as the Discover card, provide a cash back bonus for regular use. If you use the card to buy your gas and pay your bill in full each month, you will actually receive a rebate, which effectively lowers the price of the fuel. That is a big bonus. Not only that, but Discover actually offers a special version of their card which is designed for gasoline purchases. This card provides even larger rebates for use at the pump. Keep in mind that if you cannot pay in full, you are paying interest which will more than offset any savings you might receive from using the card in the first place.

Credit cards for gas purchases? It’s a good idea only if you pay your bill every month. Otherwise, forget it.

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