We use credit cards for day to day transactions, but occasionally we need to make a large purchase. At that time, it makes sense to consider what the best method of payment is. For most people, using a credit card for a large purchase can have many benefits.
What are the best times to use a credit card for a large purchase?
A good time to use a credit card for a large transaction is when the card offers rewards for spending. Most reward credit cards will return a value of at least 1% in the form of loyalty points, miles, or cash back. Thankfully, there are many reward cards that can even return more than one percent in value. Yet the ideal situation is when a credit card features some sort of minimum spending threshold for a sign-up bonus or a lump sum annual bonus.
For example, some American Express Delta SkyMiles credit cards offer valuable Medallion Qualifying Miles when cardholders spend a certain amount within the calendar year. Therefore, reaching that amount will result in bonus miles that will qualify the cardholders for elite status, a perk that includes fee waivers and first-class upgrades.
Additionally, some cardholders can also take advantage of an interest free loan when making large purchases with their credit card. For instance, those who pay their balance in full each month can make a charge at the beginning of their statement cycle, and have up to 50 days to make full payment without paying interest.
Other credit card users who can avoid interest payments on large purchases include those who have a 0% APR promotional interest rate.
The problems with charging larger purchases to a credit card
Despite all of these advantages, there are some times where making a larger purchase on a credit card can be detrimental to the cardholder. Those who are carrying a balance will not enjoy interest free financing. These cardholders will incur costly interest on their purchases from the moment of the transaction.
In other situations, carrying a large purchase on a credit card balance can hurt the cardholder’s credit. This can happen when the large purchase takes up a large amount of the cardholder’s available credit, raising the user’s debt to credit ratio.
Finally, there are some types of purchases that will require an additional fee in order to place on a credit card. These transactions can include tax payments and school tuition.
By understanding the best situations to use a credit card for a large purchase, and when to avoid doing so, cardholders can earn the most valuable rewards without wasting money on interest or fees.