It can be tempting to put any large purchases on your credit card, especially if you have a higher credit limit. But despite how easy this is, it can cause you quite a few financial issues if you habitually use it. Rather than always borrowing against the future and paying for that with interest, consider some of the other options available.
Save Up
Larger purchases aren’t often something that comes up last minute and needs to be made at that moment. If you have time to plan for the purchase, saving up the cash to make the purchase outright is a great idea. Every time you get a paycheck, set aside a little bit of it in a separate account specifically for your purchase.
Not only does this save you money in terms of interest payments, but it can also remove any impulsivity from your spending. If you decide over the time you are saving up that this purchase isn’t something that you want or that it isn’t a good option anymore, you haven’t spent the money yet and you are in a better position.
Borrow From Your Home Equity
If you need money right away, but you don’t want to use your credit card, using home equity is also a great option. When you get a home equity loan, you are drawing against the value of your home to advance your loan and you pay interest on that amount. Home equity loans allow you to borrow up to 85% of your home’s value.
While this seems similar to a credit card, home equity loans often have a much lower interest rate than credit cards because they are secured loans, while credit cards are unsecured. Just make sure you don’t default on the home equity loan, since your property is the collateral.
Consider Your Needs
When looking at large purchases that you can’t save up or pull a home equity loan for, make sure you consider whether this is something that you need or even truly want. Credit cards make spending a large amount of money very easy. In fact, about 45% of US households have revolving credit card debt at some point every year. Carrying some revolving debt may not seem like a big idea if you think you can resolve it quickly, but you want to get a true picture of what you are paying for before you make that decision. Sit down and calculate how much interest you will end up paying and what the true cost is before you decide it is truly worth it.
Your credit card can be a great financial tool when used properly. Just don’t let yourself get sucked into the trap of using it to pay for everything without thinking about it or exploring other options. Credit card debt is difficult to get rid of and acting responsibly is the best way to avoid it.
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