When used wisely, credit cards can be very useful financial tools. This includes knowing what to use your credit card for and when to just use your cash. While credit cards offer convenience and the potential for rewards, they also come with risks, including high interest rates and the potential for debt accumulation. So, deciding whether to put those big purchases like rent, a new car, or even mortgage payments you should explore whether this is always the smartest option. 

 

Is it a good idea to use your credit card for large purchases?

Paying your larger purchases on a credit card may seem like a safe idea but this is often how people fall into debt they can’t come back from. Paying for things like rent, cars, mortgage payments - recurring expenses means that each month you have to pay this back in full or watch as it tips over and builds up each month. 

 

Often, landlords will charge extra fees for credit card payments or won’t accept them at all. Also, with higher interest rates this could make your rent higher overall.

When buying a car or financing a car you could earn points by putting these large purchases on your credit card, however many car dealerships limit how much you can charge or you could pay a higher interest rate. If you need help, then traditional car loans often come with lower rates. 

Mortgage lenders may charge processing fees for credit card payments, and, given the size of mortgage payments, failing to pay off the balance could lead to high interest charges. Moreover, many mortgage companies do not even accept credit card payments, making this option impractical for most.

 

When using your credit card for any of these large purchases you have a higher chance of building debt and having to pay credit card late payment fees, high interest rates and additional payments. 

 

What should a credit card be used for?

Credit cards can be useful and can help you manage your finances but making sure you know when not to use it will be equally helpful to maximise the benefits. Below is a list of uses your credit card should be used for.

 

  • Rewards and Cashback

You can find various credit cards that offer rewards points or cashback for purchases. With this, using your card for planned and manageable expenses, like groceries or petrol can help you accumulate these benefits without stretching yourself too thin. 

 

  • Building Credit 

Most people use their credit card in order to build a good credit score and report as this will help when you are ready to get a mortgage or other loans. When you use your credit card effectively and pay off your balance on time, in full each month you show lenders you’re a responsible borrower. 

 

  • Emergencies

While it is not ideal to rely on your credit card for emergencies and it would be best to have a personal savings account for this, you can use your credit card if needed. 

 

The Negatives of using a credit card for big purchases

  • Building up debt: Large purchases can quickly max out your credit limit as well as lead to a build up of debt. They will be more challenging to pay off in full every month and you are more likely to get yourself into debt you can’t pay off.
  • High interest rates: If the above does happen then your debt will also have higher interest rates than other forms of borrowing such as loans. 
  • Potential for overspending: People can often get carried away with a credit card as they see it as unlimited funds. This can be dangerous very quickly as you can start spending money you can’t pay back. 

 

If you need help with how to pay off credit card debt then contact your bank and use these guides. 

 

When to avoid using your credit card?

  • When you are paying large, recurring expenses
  • When you can’t pay off the full balance in time
  • When there are additional fees

 

By following this guide about using your credit card you will be able to use the financial tool effectively. You can make sure you can build up a good credit score and avoid large interest fees and debt accumulation.