Using Credit for Large Purchases

When making a large purchase on credit, consider what interest rates and payments your finances can handle.

We all know that using credit cards is easy, convenient and very tempting. But to use your credit wisely and avoid getting trapped by mounting debt, you need to be serious about tracking your spending, budgeting your money and scheduling payments. This is especially true if you are considering making a major purchase on credit.

Here are some pointers to keep in mind:

Interest rates and minimum payments
If you are considering making a major purchase on your credit card, you might want to do some math to see if it is worth it. Ask yourself these questions: With current interest rates, how much will my purchase really end up costing if I don't pay off the balance immediately? Would it cost me less if took out a loan or came up with an alternate purchasing plan? Will I receive any useful rewards from my credit card company for making this purchase?

If you can spend less money overall by getting a loan, or if you get special rewards for spending money on your credit card, then it may be worth it to make your purchase on credit. But if you can't take advantage of low interest rates, and you can only afford to make the minimum payments each month, you might want to consider another strategy for making that purchase.

Your credit limit
If making this purchase is going to leave you with a large balance for a long period of time, you might want to reconsider. Remember, your credit score is based partly on how close your outstanding debts are to their limits. So if you can only afford to slowly chip away at this purchase, you can run the risk of lowering your credit score, which can make it harder to obtain other lines of credit.

Purchase approval
If you decide to make a large purchase on your credit card, particularly if it takes up a great deal of your credit limit, you might not immediately be approved. Credit card companies monitor transactions for indications of fraudulent purchases, so if you've never spent such a large sum all at one time, your creditor may get suspicious and ask for identification and verification of your personal data. It's a good idea to call ahead of time and alert your card company of your plans so you won't find yourself in an awkward situation at the time of your purchase.

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