Perhaps not surprisingly, Americans’ credit cards have gotten a little dusty since the start of the pandemic. Recent numbers from credit-reporting agency Experian found that 2020 saw a sharp decrease in both credit card applications and usage. In fact, credit card debt decreased 9% last year, the first drop since 2013. Balances went down, too, an average of 14% since 2019.
But the world is starting to see signs of life. And as things start to return to normal, it’s possible that spending will, too. As you get ready to embark on a long-awaited road trip or finally treat yourself to that new refrigerator you’ve been putting off just in case you need the cash, it might be time to consider the best credit card for large purchases.
That said, the general recommendation is still this: Don’t put anything on a card that can’t be paid off in full each month. And for everyday purchases, that’s still solid advice. There are times, however, when using a credit card for a large purchase may be a smart idea — even if you can’t pay it off right away.
Some people pull out the plastic vs. the cash for almost everything, including smaller, repeat purchases like groceries, gas or getting a haircut. But others reserve them for larger, one-time purchases only, like appliances, vacations, expensive electronics or home improvement upgrades.
There’s one obvious advantage to why you should use a credit card for large purchases: having something now without having to pay for it now. But it’s not always about instant gratification.
Here’s a list of five larger purchases that you may want to consider putting on a card, and the potential benefits of each.
If a new washer/dryer set or stove is on your shopping list, you may want to consider a credit card that offers extra purchase protection. This benefit acts as an extra layer of damage protection on top of what a retailer might offer, and in some cases may even be better, so it’s a good idea to compare the two. The Chase Sapphire Preferred®, for example, offers some of the highest limits at $500 per claim and $50,000 per account for “eligible personal property that has been damaged, stolen, or involuntary and accidental parting with property within 120 days from the date of purchase.”
Consider a card with extra purchase protection if: You’re buying a household appliance that could be damaged or broken, either during installation or after. The extra protection can be especially beneficial if you’d feel the financial pain of having to repair or replace your purchase right away.
Pro tip: Read the fine print to determine exactly what type of protection is offered. Coverage can vary widely from card to card, and most plans come with a lot of asterisks and fine print. For example, check to see whether the protection applies to used or antique items, and what kinds of damage are eligible. This benefit can also be available for travel (sometimes called trip insurance), and it could help you get at least some of your money back if your trip doesn’t happen as planned.
You’ve probably seen credit card ads that offer “50,000 bonus miles when you sign up!” That’s a tempting offer for anyone who collects frequent flier miles, especially when the average domestic coach ticket can be purchased for around 14,000 miles. The catch with these types of high-value bonuses is that you’ll need to spend a certain amount of money on your card within a certain time in order to receive them, but some amount of advance planning will work in your favor. If you’ve planned a week-long trip to Disney World for your family of four, for example, you’ll need time to estimate how many points you’ll need to get decent discounts on travel. In addition to the bonus miles that can be redeemed for airline tickets, some cards might offer bonus points in certain spending categories.
Consider a travel rewards card if: You have a favorite airline, hotel chain, or vacation destination that offers loyalty rewards for being a customer. Your large purchase may yield rewards points on top of any sign-on bonus the card offers.
Pro tip: If you want to use a credit card to earn bonus points, take some time to research which one will give you the type of reward you want. Are you looking for a card that will give you the max rewards for a specific brand, or do you want more flexibility on how to redeem your miles? Some cards, like the Southwest Rapid Rewards® Plus Visa, for example, focus mostly on flight-related perks for their airline, like bonus miles, upgrades, free bags, and no change fees. Conversely, cards like the Capital One® Venture lets users earn miles that can be used for a wide variety of travel rewards.
Electronics and Gaming Equipment
If a new gaming laptop is in your future, or even an entire gaming setup complete with multiple monitors, chairs and surround sound, a credit card that offers cold, hard cash back might help take the edge off the sticker price. Offers typically range between 1% and 3%, but there are cards that offer up to 5% to 6%, especially when tied to certain electronics retailers, like Best Buy, or brands, like PlayStation.
Consider a cash back rewards card if: Your electronics purchase is too much to pay using cash, but is eligible for a good amount of cash back. If applied to your monthly statements, your cash back rewards can help you reduce your payments.
Pro tip: When researching the best credit card for large purchases like electronics, make sure the card’s other terms, such as annual fees or interest rates, don’t outweigh the benefit of the cash back. (The average credit card rate is around 20%, and some store cards are almost 25%.) In addition, keep an eye out for temporary cash back offers. Some cards offer increased cash back for certain types of purchases for a few months or a few weeks. One good way to stay informed of these offers is to follow some trusted websites that specialize in comparing credit card rewards, or track targeted credit card offers.
Furniture and Floors
It’s pretty easy to find a credit card that offers a 0% promotional APR to customers who need to make some home improvements, and no surprise that they’re highly attractive — paying same-as-cash for a new bedroom set allows you to take it home ASAP and start using it, sometimes even before you have to start paying for it. As perfect as promotional cards may seem at the outset, however, they come with a huge buyer beware: the end of the promotional period. If the balance of the purchase isn’t completely paid off by the deadline, you could be in for a costly surprise.
Consider a promotional APR card if: You’re 100% confident you can pay off your purchase before the promotional period ends. If you still have a balance left over, you’re likely to be on the hook for that amount plus interest at the card’s regular rate.
Pro tip: Narrow down your choices for a promotional APR card by looking at the other perks it might also offer, including the length of the promotional term, the regular interest rate, late penalties or annual fees. Once you make your purchase, divide the total amount you’ll need to pay by the number of billing cycles in the promotional period (the average is 10 and a half months). This is the minimum you’ll need to pay each month to beat the interest, and it’s likely more than the card minimum payment.
It’s true that those zero-turn mowers are fast and fun to drive, but all that technology doesn’t come cheap. If you’re in the market to upgrade your outdoor power equipment, you may want to consider retailer financing. Home improvement stores and specialty retailers for all things outdoors are likely to offer their own credit cards, making larger purchases like power washers, snowplows or outdoor kitchens possible.
Consider in-store special financing if: You need the outdoor equipment now, but you can’t afford a cash payment. Especially if you’re a loyalist, cards from retailers like Lowe’s might be attractive for the perks offered on other purchases, too.
Pro tip: If you sign up for a store credit card to get “special financing,” be sure to go through the fine print with a fine-toothed comb. Unlike promotional APR credit cards from major providers like Visa, MasterCard and Discover, some retailer cards have terms and conditions that can lead to unexpected, and unpleasant, surprises. (More on this below.)
Pros and Cons of Making Large Purchases on Credit
The reasons why you should use a credit card for large purchases can be as plentiful as the credit cards there are to choose from. You can buy the latest phone today, take that dream vacation now instead of later, or replace your dishwasher the second it stops washing dishes. And, if the purchase is made using a 0% APR card, or one that offers amazing cashback or rewards, it can be even more gratifying.
Another perk to using credit cards wisely is that they can be a tool to build your credit. Staying on top of your card payments will reflect well on your ability to pay when you’re looking at a much bigger purchase down the road, like a house.
The oft-repeated caveats about using credit cards still ring true, however. If you aren’t able to pay off the purchase before the billing cycle ends, interest will accrue and you’ll end up paying more than the original sticker price for the item. Falling behind on payments will negatively affect your credit.
A Note About Retail Cards
Signing up for a credit card tied to a retailer is often promoted as “special financing” or “deferred interest.” Here’s a breakdown of what that typically means, and how it’s different from typical promotional interest cards: If you buy something on a 0% interest bank-issued credit card and have a balance left at the end, you’ll be charged interest on the balance at the card’s regular rate.
If you make a purchase using in-store special financing, however, and the balance isn’t zero by the time the deferred interest period ends, you may be on the hook for all the interest that’s been accruing during the promotional period at the card’s regular interest rate, based on the original purchase price. These retroactive interest payments could range into the hundreds, and even thousands, of dollars and negate any savings you may have earned at first. To avoid this outcome, be sure you know the exact date when the promotion ends, and be sure your balance is zero before it arrives.
Discipline Is Key
Regardless of your reasons for putting a large purchase on a credit card, the key to reaping all of the associated benefits is to do your homework, be diligent about payments and pay attention to any important dates. A credit card payoff app like Tally is a great way to keep track of what’s due, and when.
To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) Will be between 7.9% – 25.9% per year, and will be based on your credit history. The APR will vary with the market based on the Prime Rate.