Financing Purchases With A Credit Card

Most consumers use credit cards for easy to repay, regular occurring purchases like gas or groceries. Big ticket items are generally reserved for loans due to several reasons, the main one being credit limits, the maximum amount of money the bank is willing to loan you at a given time. Assuming you’ve made all your payments, increasing a credit limit can be as simple as making a phone call or a few clicks on the Internet. High interest rates can also be a deterrent. These two reasons alone are usually enough to keep large purchases, such as cars, off your card.

The outcome of using a credit card to finance purchases is wholly dependent on several different factors. When determining whether or not it is a good idea to use a credit card, consider the amount of money that will be charged on the card, your current interest rate on the card, your credit limit and approximately how long if will take you to pay off the debt. Also note if there are any surcharges you will have to pay with each transaction. Some cards can charge up to 3% of the total amount. Accumulating large purchases on your credit card can leave you drowning in debt and damage your credit. It is never wise to max out your credit card, as you can never anticipate an emergency.

Exercise caution when using your credit cards. Keep a separate running list of your purchases to compare with your monthly statement. Understanding how to manage credit and credit card debt is one of the important personal finance lessons that all credit card owners should be aware of.

Considerations when financing purchases with your credit in the following situations:

• In an emergency - Use your credit card when you have no other options or if other options will be more costly than the interest you will pay on the charge. Financing unanticipated purchases like an auto or home repair may prove to be a wise investment. For example, if your car breaks down and the cost of using public transportation or missing work because you are saving up for the repair, not to mention the hassle of being without a vehicle, are over the cost of the interest you will pay, then using a credit card may be acceptable.
• On sale items - If there is a specific item that you want or need that is on sale at such a price that you will spend less in interest then you would if you were to buy the item at full price it is all right to use a credit card. Just be sure that the deal is worth it and it actually saves you money.
• For a lower interest rate - Apply for a low-interest rate credit card if you are considering making payments for an item that will take several months to pay off. Even if there is an annual fee to keep the card, the sum of the interest accrued over a few months will be substantially less than holding a higher interest card with no annual fee.
• In specialty stores - department store and chain stores offer perks like rewards, deals, and other specials for using their credit cards in store, especially if you make frequent purchases there. Many of these credit cards advertise 0% or competitive low interest rates for the first few years.
• When the purchase can you make money - This circumstance only happens for a handful of people. But, if your credit card has a lower rate on a cash withdrawal then you could earn in interest on an investment. You could turn the difference into a profit. Another situation to accumulate cash back is using specially designated cards to make certain purchases. For example, some gas stations offer cash back when using their credit card to fill up the tank.
• To finance a trip - If you travel frequently for work or pleasure, credit cards offered by airline carriers are a great way to rack up bonus miles and buy discounted or free airfare. Using airline credit cards to pay for a trip usually results in more bonus miles per dollar spent and some go so far as to offer deals on rental cars and hotels.

How to Make Large Purchases on Credit Cards

Should you be bent on making a large purchase using credit cards, there are several options to consider while keeping the interest rates at a minimum:

• Apply for a credit card with cash back rewards; some cards offer up to 5% cash back for purchases made the first few months.
• Use a card with a zero balance. This will give you an opportunity to repay the debt during the interest-free period.
• Spread the total purchase price between several cards you already own. This may be the most risky piece of advice yet, so make sure you pay attention to how much you put on each card and each cards interest rates.
• Balance transfer credit cards are another option to keep interest rates low. Many offer no interest or low interest rates period of three (3) to twelve (12) months.  

When Taking Out a Loan Is the Better Option

Many lenders consider $5,000 to be the cut-off for using a credit card to purchase larger items. Past the $5,000 threshold, personal loans generally offer better, more competitive interest rates. Taking out a loan is a more sound option, as the repayment plans are more structured. With credit cards, you are only required to make a monthly minimum payment that barely covers the interest. Most loan repayment plans help reduce both the interest and the principle balance. Moreover, taking out a sizeable loan should really make you reconsider the necessity of the item you are considering to purchase. It is much easier to get in to trouble merely having to swipe a piece of plastic than it is to sit down with a bank representative and personally ask for the money.

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Popular Credit Card Offers

			Interest Rate (p.a.)	Balance Transfer Rate (p.a.)	Annual fee	Cash Advance Rate (p.a.)
	Westpac Low Rate Card - 0% Offer	A credit card with a low rate offer on both balance transfers and purchases, plus a low annual fee.	0% for 6 months (reverts to 13.49% )	0% for 6 months	$45	21.49%
	Citibank Clear Platinum Card	Competitive interest rate on purchases and balance transfers offer.	11.99%	2.9% for 12 months	$99	21.74%
	St George Vertigo	Take advantage of this great offer from St.George with a low rate on purchases and a low balance transfer offer.	13.24%	0.99% for 12 months	$55	21.49%
	ANZ Platinum Credit Card	An introductory interest rate offer on balance transfers and purchases, plus a $0 first year annual fee.	0% for 6 months (reverts to 19.24% )	0% for 6 months	$0 annual fee for the first year( $87 thereafter)	20.99%