Credit cards can be incredibly helpful when you are looking to make a large purchase. But relying too heavily on credit cards can be a recipe for disaster if you allow yourself to get carried away. Being able to tell the difference is the key to taking advantage of the excellent benefits you can get by utilizing a credit card for large purchases while avoiding falling into problem debt.
We will equip you with a comprehensive knowledge of when it is wise to use a credit card for a large purchase and how you should go about it to reap the greatest rewards. It’s crucial that you are also aware of when you should avoid using your credit card and what actions you can take to protect yourself from building up more debt than you can afford to pay off.
How Credit Cards Work
Credit cards are an incredibly popular lending product that is so commonplace in this day and age that it is barely even thought of as a way of borrowing money but rather as an alternative to a debit card. This particular lending product is a revolving credit account with a limit you can spend up until. A credit card is called “revolving” because the balance can be paid down as you continue to spend.
Credit card accounts are so popular because they are incredibly easy to apply for and be approved for. Account opening is simple and is a straightforward way to build one’s credit history. Credit card accounts are so accessible that it has become easier and easier for everyday people to fall deep into debt. Credit cards tend to have substantial interest rates, which can get higher as your balance gets larger. Because of this, credit card debt has become a significant issue for many Americans.
Is It Smart To Use a Credit Card for Large Purchases?
There are certain instances where using credit cards for large purchases is a particularly smart idea. Determining whether you ought to use a credit card for large purchases depends entirely on how you intend to go about it. If you have the means to pay off the balance quickly, you can use a credit card for the benefits and rewards without having to pay the price in interest charges.
There are several strategies you can use if you plan to utilize a credit card to make a large purchase to ensure you get the most benefit at the lowest cost. When you go about it the right away, using your credit card can be incredibly smart, while, at other times, you should avoid the use of your credit card to protect yourself from problem debt.
Why Use a Credit Card for Large Purchases?
It is wise to understand exactly why you are considering using a credit card for a large purchase rather than your debit card. Approaching it from the perspective of using your credit card because you don’t have the cash to make your purchases outright is exactly what could lead you into debt you can’t afford. Having a reason and a plan for handling the balance will put you in a much better financial position.
Here are a few of the best reasons why it might be a good idea to use a credit card for large purchases:
Rewards Credit Cards
Some credit card companies offer customers the opportunity to earn rewards and bonus points when they use their cards on a big purchase. Using a rewards credit card strategically on a large purchase to gain a significant amount of bonus rewards can be an excellent way to leverage your existing credit card for eligible purchases you would have made anyway.
You can earn rewards that come in the form of travel rewards, a statement credit, cash rewards, etc. One thing to be aware of when using a rewards credit card is that sometimes the rewards don’t always outweigh the interest rate or the annual fee. It’d be wise to calculate whether you’re saving money or not before spending a lot just to earn rewards.
Sometimes a rewards credit card will also offer valuable cardholder benefits as well, such as purchase protection or an automatic credit limit increase.
You should also be able to find a credit card issuer that offers sign-up bonuses with each new account opening. A sign-up bonus could include cash back, bonus points, or travel miles. Customers typically need to spend a certain amount within the first few months to receive this welcome bonus.
Therefore, if you find a credit card with a generous sign-up bonus and were already planning on making a couple of large purchases, you could quickly access that generous welcome bonus without much strain.
0% APR Promotional Offer
One of the absolute best strategies for getting the most out of a credit card for a large purchase is to take advantage of a 0% intro APR promotional offer given as a sign-up bonus. Credit cards with a 0% intro APR are the perfect opportunity to get interest-free financing on big purchases. A sign-up bonus offer of 0% intro APR can sometimes last a year to 18 months, during which time you will still need to make the minimum payment but not have any interest charges.
The best way to use this strategically for big purchases, everyday purchases, or balance transfers is to pay off the balance in full by the time the 0% intro APR ends so that you end up not having to pay a dime in interest to the card issuer.
Travel Rewards Credit Cards
If you travel for work, a travel rewards card could provide an enormous amount of benefits that greatly outweigh the costs. Particular credit cards that cater to very specific needs, such as travel cards, may come with an annual fee. Still, if you make enough eligible purchases within a year, the money you save in foreign transaction fees and flight miles can more than makeup for it.
Signing up for a travel rewards card like the Chase Ultimate Rewards or Venture Rewards Credit Card might not be worth it for purchasing one plane flight ticket, but if you’ll continue to make travel purchases or other eligible purchases, then it might be worth the annual fee.
Tips and Strategies For Getting the Most Out of Your Credit Card For Large Purchases
Cheating the system with credit cards can be challenging without severe discipline. It’s tempting to run up your balance to the credit limit or to buy more things you don’t need simply because they are eligible purchases for statement credit or bonus rewards.
Here are a few tips to always keep in mind when you are navigating how to use your credit card to earn cash or save money on big purchases:
Pay Off The Balance Before the Promo Ends
Always, and we mean always, pay off your entire balance on your credit limit before the promotional period ends on your 0% intro APR. Once the promo period ends, the financial institution will immediately begin charging interest on the balance.
If you pay the total balance before interest kicks in, your credit limit basically functioned as an interest-free personal loan which saves you a ton of money.
Don’t Sign Up For Multiple Offers At the Same Time
Avoid applying for multiple credit card offers at the same time. Too many hard inquiries on your credit report could negatively affect your credit scores. Additionally, having too many credit limits with requirements to attain the welcome bonus or membership rewards points could tempt you to spend an exorbitant amount of money on things you don’t need.
The statement credit or bonus points you receive on multiple cards is unlikely to earn cash in high enough volumes to make up for the unnecessary money you spent.
Never Spend What You Can’t Pay Back Just For The Benefits
Only use a credit card for the purpose of a large purchase when it is a purchase you were already planning to make. Put simply, use a credit card for bonus points or rewards as if it was a debit card, so you are only spending money you already have and can pay back immediately.
Doing this will allow you to pay off the balance before the next bill cycle, which will make all the difference in the cost of borrowing. All the cash back and statement credit you get will mean nothing if you end up needing to pay an arm and a leg in interest charges every month.
Credit Card Alternatives For a Large Purchase
If you aren’t sure using credit cards for large purchases is a good idea, there are some alternatives that might be a more beneficial fit. Saving up your money beforehand could allow you to avoid applying for a new credit card if your large purchase can stand to wait a while.
If your large purchase can’t wait, but you don’t want to go the credit card route, you can look into the possibility of a personal loan instead. Personal loans come in all shapes and sizes, with terms lasting only to your next paycheck all the way up to five years or longer. A personal loan, like a credit card, can be used for whatever purpose you like, which makes them a great option for a high-cost items or other purchases you might need to make.
Unlike with credit cards though, there are personal loan options for individuals with bad credit. Easy payday loans and cash advances available online provide a way to get funding quickly despite poor credit history. However, you will need to be sure that you can afford to pay back the loans along with the high-interest rates, as many of these Subprime lending options are costly and short-term.
And if you have more questions about credit cards, like “can you survive without having a credit card?” then check out our other blogs in the CreditNinja Dojo!