If you’re like most people, you probably know how quickly even small purchases can raise your credit card balance. Throw in several larger purchases, such as car or health insurance, medical bills or vacation costs and before you know it, your balance is out of control.
If you’ve charged too much on your credit card before and took a long time to pay it off, charging a large purchase on your credit card may sound like a recipe for debt trouble. There may be situations, however, when putting a large purchase on a credit card can work in your favor.
Find out four times charging a large purchase on a credit card might be beneficial…
You’ll receive a big sign-up bonus
Many credit cards offer a lucrative sign-up bonus, which can range from as little as $100 to as much as $600 or more. There’s a catch with this offer, however. To get the sign-up bonus, you typically must charge a certain amount within the first 90 days after opening the card.
For example, a credit card might offer a sign-up bonus of 100,000 points or $1,250 in cash rewards if you spend $4,000 in the first three months. On a smaller scale, a different credit card might offer a sign-up bonus of $200 if you spend $500 in purchases in the first 90 days of opening the account.
Making a large purchase with a new credit card to get the sign-up bonus can be smart if you have the discipline and means to pay off the statement balance right away. Be careful, though. Charging thousands of dollars in a few months without having the resources or discipline to pay it off as soon as possible can land you in more credit card debt than you can handle.
Find out: Which Type of Credit Card is Right for You?
The card has an introductory 0% APR
If you need to purchase a costly appliance such as a washer and dryer, air conditioner or other home improvement or repair, you might benefit by charging the item on a credit card with an introductory 0% APR for the first six months, 12 months or 18 months. That way, you can make monthly payments without paying any interest while enjoying your new purchase.
However, this good deal can also backfire. If you make a late payment or miss a payment, the card issuer may nix the agreement and apply a new, much higher interest rate retroactively for previous and future months. If you want to charge a large purchase to get a 0% APR while you pay off the purchase, calculate exactly how much you need to pay each month to eliminate the balance by the introductory offer’s expiration date.
Tip: If you want to pay the balance off without paying interest, never pay just the minimum payment amount you see on your credit card statement. That amount benefits the credit card issuer, not the cardholder, when you end up paying loads of interest later because you still have a large balance when the 0% APR offer expires.
Find out: 7 Hazards of a 0% Interest Offer and How to Avoid Them
You will earn rewards
This one is a little tricky, since charging a bunch of purchases simply to earn cash back or travel points may not be worth it, and charging anything and everything can run up thousands of dollars in credit card debt. However, if you already have the money to pay off a large credit card purchase immediately, you might be able to score a lot of rewards by charging the purchase on your rewards card.
The key to making this method of payment work is having the money on hand before you charge the purchase to your credit card. That way, you can earn rewards and pay off the statement balance to avoid paying interest or running up too much credit card debt.
Find out: 5 Things to Look for in a Travel Rewards Credit Card
You want credit card purchase protection
If you’re purchasing an expensive appliance, many credit cards offer extra purchase protection, such as reimbursement or replacement of the purchased item if it’s damaged or stolen within a specific time frame. Your credit card may even offer an extended warranty on the purchase, on top of the manufacturer’s warranty.
