Tips for Making Big Credit Card PurchasesJuly 12, 2011 - 10:46 am
Often, you may need to use your credit card for a large purchase, because you don’t have the cash to pay for the purchase. Or sometimes, you’d use your card because it is safer than using cash. Whenever you’re preparing for such a large purchase, follow these guidelines, even if you plan to repay the purchase when your statement arrives.
Choose a credit card with a large limit. The card should have at least as much available as the amount of the purchase, plus a little bit more so there’s room for any finance charges. It’s better if your limit is much greater than your purchase since balances above 30% of the limit can negatively affect your score.
Ask for a credit limit increase if you need to. If your limit isn’t big enough, ask your card issuer for an increase. This is always a good idea if you have a card with no preset spending limit since your card issuer may decline a purchase larger than what you normally charge. Some issuers will let you charge a certain amount above your credit limit, e.g. 20%, and some have even eliminated over-the-limit fees. Check with your issuer to see if this is the case.
Have a plan for paying the money back. Before you make the purchase, come up with a payment plan. You can use an online credit card calculator to calculate the monthly payment necessary to pay off your balance within a certain amount of time. Check your budget to figure out how much you can afford to repay on the balance every month.
Build the payment into your monthly budget. Once you decide what you’re going to pay toward your credit card balance every month, recalculate your budget to include the credit card payment. That way, you can decrease other expenses if necessary.
Use a credit card with a low-interest rate. If you can’t afford to repay your balance in full at the end of the month, use the credit card with the lowest interest rate. This will keep your monthly finance charges lower than they’d be on a credit card with a higher rate. If all your credit cards have high interest rates and your credit card issuer won’t lower your rate, you can apply for a credit card with a lower interest rate. Check your credit rating to see if you’d qualify for a low rate before you make the application.
Avoid making new purchases until you’ve repaid the balance. Eliminating new credit card purchases will help you pay off your balance within your expected time frame. It will also keep you from creating a huge debt that you can’t afford to repay.
Big credit card purchases take longer to pay off when you don’t have the money to pay for them upfront. Because of this, you should treat them different from smaller purchases that you can easily repay in one or two months.