Don't Donate to Charity With a Credit Card -- Here's Why

Your donation may be going more places than you think.

Donating to a good cause is one of those things in life that is truly win-win. A charity or nonprofit gets financial help, which is always welcome. Plus, you get that warm fuzzy feeling inside. Everybody wins.

When that donation is made with a credit card, however, you're not the only winners. The credit card companies are also scoring a win -- and they're probably doing it at the expense of the charity.

Merchant fees strike again

Few things in life are free. And that extends to credit cards, even if you're not the one paying.

Have you ever wondered how no annual fee credit cards are still profitable for the issuers? How they can give you that $200 sign-up bonus without charging you money for the card? It's because they charge the merchants.

Every time you use your credit card to pay a merchant -- or, in this case, a nonprofit -- the merchant pays a fee to the credit card companies. (Well, in most cases, the merchant pays a third-party provider, who then pays the issuers and networks. But that's neither here nor there.)

These fees vary based on the credit card companies involved, and it can range from 0.1% up to 3.5% of the transaction. (That's where the "convenience" fees typically come from when you use a card to pay taxes or utilities.)

So, when you make a donation to a nonprofit with your credit card, the nonprofit then has to pay the credit card processing fees. In real terms, this could mean they really only see $97 out of every $100 you donate. 

This isn't much on the small scale, but it can add up if you're making larger donations. And, of course, for the nonprofit, it can make a huge difference. Many charity organizations subsist on shoe-string budgets to begin with.

Adjust your donation to compensate

Fees aside, there are a few reasons you may want to use a credit card anyway:

• Security: When doing business online, credit cards are typically safer than debit cards.
• Convenience: Sending a check through the mail would probably require having, you know, checks. (Something going the way of the VHS tape.)
• Rewards: Depending on the card, you could potentially earn credit card rewards on your donation. At the very least, you may want to earn a sign-up bonus.

If this is the case, it's still perfectly fine to use your card. But consider footing the fees yourself by adding an extra 2% or so onto your donation.

Don't forget credit cards can mean carrying debt

Another thing to keep in mind before making a donation with your credit card is that you shouldn't donate more than you can afford to pay off quickly. If you carry the balance beyond your due date, you'll start accruing interest. And given the high interest rates on most credit cards, that interest will add up fast.

Any warm fuzzy feeling -- and any potential tax benefits -- will quickly fade in the face of the high interest fees you'll pay when that bill comes due. Stick to making donations you can back up with cash.

Consider donating rewards instead

While using your card to make a donation directly can mean extra fees, you may be able to use your card's rewards to make a donation. Multiple card issuers give you the option to redeem credit card points for charitable donations.

Donating with your rewards won't usually give you the best per-point value -- redeeming for travel is usually the most valuable route -- but it can be a nice way to use up extra points if you don't have travel planned or are canceling a card.

You can also donate credit card miles through several third-party organizations. For example, Miles4Migrants uses donated miles to help refugees.

Your cash back rewards can also be put to charitable use. Several issuers let you redeem rewards right into your bank account, then you can take that cash and donate to a local charity directly. Not only will they get the full donation -- meaning, no credit card fees to pay -- but donating to a local nonprofit can often have far more impact than donating to a much larger national or international organization.