Picture this: You've just received your very first credit card, and you're staring at the tempting credit limit. A shiny new TV or an unexpected car repair comes up, and you wonder, "Should I swipe my card for this big purchase?" It's a common question, especially for people juggling entry-level jobs, student loans, or family expenses. In this blog, we'll break down whether using your credit card for big purchases is a smart move and how to handle it responsibly.
When you’re considering using your credit card for a large purchase, you’ll want to weigh the pros and cons.
Pros:
Earn rewards: Many credit cards offer points, miles, or cashback on purchases. If your card offers rewards, a large purchase can help you rack up points fast—just make sure you can pay it off to avoid interest. For instance, buying that $1,000 laptop could earn you 2% cashback, translating into $20 back in rewards.
Sign-up bonuses: Some cards offer a sign-up bonus after you spend a certain amount in the first few months. If you’ve just opened your account, that big purchase might help you meet the spending requirement to earn a bonus, like $200 cashback after spending $1,500 in three months.
0% Intro APR Offers: Many credit cards offer 0% introductory APR periods for purchases. If your card has this feature, a big purchase can be spread out over several months without interest, which might give you more financial breathing room.
Cons:
Interest rates: If you don’t pay off your balance in full before the billing cycle ends, you’ll be charged interest. Credit card interest rates are often as high as 20%, and that $1,000 TV could end up costing much more in the long run.
Impact on your credit score: Big purchases can quickly max out your credit limit, which negatively impacts your credit utilization ratio. Experts recommend keeping your credit utilization below 30%, so if your limit is $3,000, that $1,000 purchase could bring you dangerously close.
Let’s say Mark, who just got his first credit card, decides to put $1,500 for a new laptop on his card. If he doesn’t pay it off quickly, not only will he accrue interest, but his credit score might take a hit due to high utilization. To avoid this, Mark might consider spreading out payments within the 0% APR period or opting for a savings plan instead.
Your credit utilization ratio—how much credit you’re using compared to your credit limit—is one of the key factors that can impact your credit score. Making a big purchase that pushes you close to your credit limit can hurt your score if you’re not careful.
For example, if your credit limit is $2,000 and you make a $1,500 purchase, your credit utilization ratio jumps to 75%. Ideally, you want to keep it under 30%, so staying within that range would mean limiting your balance to $600.
But that’s not all. Carrying a high balance over time can lead to more long-term debt. The longer it takes to pay off your large purchase, the more interest you’ll accrue, which could trap you in a cycle of debt. If you’re unable to pay off your credit card each month, consider alternatives like saving up for the purchase or using a lower-interest loan.
Take Lisa, for example. She’s a recent graduate with a new job and wants to build her credit. She decides to buy a $1,200 sofa with her credit card. She realizes if she only makes minimum payments, it could take years to pay off, and she’d be paying far more in interest. Instead, she plans to split the payments over six months, staying within her budget while keeping her credit utilization low.
If you’ve decided to go ahead and use your credit card for a big purchase, there are ways to manage it responsibly without falling into debt.
Use 0% Intro APR Cards Wisely: If your credit card offers a 0% introductory APR period, it’s a great way to finance big purchases without interest. Just remember to pay off the balance before the intro period ends. If you spend $1,500 on a new refrigerator with a 12-month 0% APR card, make sure you divide that purchase by 12, paying at least $125 a month to avoid future interest charges.
Set Up a Payment Plan: Before swiping your card, make a plan for how you’ll pay off the purchase. Break down the total into manageable chunks that fit into your budget. For instance, if you’re using your card for a $2,000 car repair, plan how much you’ll pay each month to pay off the balance within a reasonable timeframe.
Monitor Your Credit Utilization: Keep an eye on how much of your available credit you’re using. As a general rule, aim to keep your credit utilization below 30% to avoid negative impacts on your credit score.
Consider Alternative Payment Options: If you’re unsure whether to charge a large expense, consider alternatives like using a savings account, setting up a personal loan, or exploring a retailer’s buy now, pay later plan.
For example, Blake just got his first credit card with a $1,000 limit. He’s been eyeing a new gaming console for $500 but worries it might max out his card. Instead, he talks to a First Alliance Credit Union Member Advisor about opening a savings account to gradually save up for the purchase without hurting his credit.
Using your credit card for big purchases isn’t necessarily a bad idea—it just requires careful planning. If you can pay off the balance quickly, take advantage of rewards, and avoid high credit utilization, it could be a great way to make large purchases. However, if there’s a risk of carrying a balance for months or maxing out your card, it might be better to consider other options.
If you’re unsure how to navigate your credit usage, reach out to a First Alliance Credit Union Member Advisor. They can help you create a strategy to manage your credit card responsibly and keep your finances on track. In the end, managing big purchases on a credit card comes down to being mindful of your budget and planning ahead. Whether it's saving for an emergency fund or taking advantage of 0% APR offers, there are plenty of ways to use credit cards to your advantage—without falling into debt.