Do you ever wonder when to use your credit card? Are you unsure if you should or shouldn’t use it?
I have a lot of experience using credit cards the right way…..and the wrong way. I’ve used my credit card to buy me and my boyfriend brand new laptops for $800 each to use while we were still in school. I have also used my credit card to purchase a brand new washer and dryer set for about $1,500 for me and my family’s new home.
Can you figure out what makes one a better investment than the other? I’ll touch on these two examples to help paint a story. Continue reading to find out when to use a credit card (and when you shouldn’t).
I have mapped out a complete guideline of questions to ask yourself before purchasing with your credit card. These 5 questions have saved me from making a spur-of-the-moment purchase which ultimately saved me hundreds in interest!
Can you borrow from a friend or family member?
Before you decide on swiping that credit card, reach out to your family or friends. You may be able to borrow/use what you need from them until you can save up the money to purchase your item with cash. Another possibility would be to purchase the item from them at a discounted rate for it being used. That is if they are willing to part with it .
Two Laptops: I couldn’t have borrowed a laptop from a friend or family member because of the amount of time I needed it. Now, I could have used the laptops from the library until I could save up enough money to buy my own. My boyfriend had a laptop…we just wanted to match.
Washer and Dryer: I couldn’t borrow a washer and dryer set from a friend or family member.
With interest included, how much will this purchase cost you?
Interest is a silent killer. Credit card interest is charged daily to any revolving balance. And it truly pays to know the interest rate your credit card carries. Before making a purchase, ensure that you will be able to cover the minimum payment PLUS the interest it will accrue daily. This helps you stay ahead of the interest and not overpay on your purchase too much.
Revolving Balance: any balance you carry on your card that isn’t paid in full at the due date.
Do you have wiggle room to incorporate the minimum payment (and interest)?
Because you are a responsible person, you will want to be sure you can comfortably accommodate this payment monthly. Ideally, you will do your own budget homework before going shopping to ensure you have a strict idea of what you can handle every month.
Laptops: When I bought those two laptops several years ago, I had no way to accommodate the payment in the meantime, I thought I’d just wing it. Which is why I ended up paying for those computers for 3 years. I think I ended up paying double the price they were originally. Crazy.
Washer & Dryer: There was definitely wiggle room in our monthly budget to pay for the purchase. Because we were eliminating the monthly cost to use a laundry mat, we freed up income.
Do you have a plan to pay your purchase off?
Can you confidently map out a way to successfully pay off this debt you are about to incur? Is tax time coming? Are you promised a bonus from your job? Do you have the capacity to double up on monthly payments to avoid astronomical amounts of interest?
Those that fail to plan, plan to fail…who said that?
Only use your credit card if you have a plan/way to pay it back. This is the single most important question to ask yourself.
Laptops: I had a plan to pay them off in full when I got my school loan refund check (paying debt with debt = BIG NO-NO). I also figured I’d pay extra money on it during the summer.
Washer & Dryer: We planned to use my yearly bonus from my job to pay the washer & dryer off in full. In the meantime (8 months), we planned to pay 3x more than the minimum monthly payment.
Is this purchase a necessity?
Lastly and the question that most people don’t even care enough to ask themselves is, “Is this purchase a necessity?”
A necessity to me would be something within the main 3 needs of survival/safety. Food, Shelter, Clothing. And really, even within those categories: there is a crazy amount of wiggle room. I think you really have to just be mindful of your personal needs and wants.
Laptops: The laptop was a necessity because I didn’t have another one but I could have gotten a cheaper one, I could have used the library at my school, my boyfriend could have used the one he had that still worked perfectly fine.
Washer & Dryer: The washer and dryer set was a legit necessity. It fits perfectly in the category of clothing and you can’t have clean clothes or good hygiene without a washer or dryer.
Credit cards can be a great use of your resources but they can also cause your family a lot of financial problems if not used correctly.
I used my credit card for two big purchases in my life. A washer and dryer set and two laptops. I asked myself these questions for the washer and dryer but I did not adequately calculate my preparedness for my purchase of the two laptops. This caused me to lose hundreds and hunnnndreds in interest (the interest rate on this credit card was highway robbery!). Ouch!
As you can see with my example answers, I was much more prepared to handle the washer and dryer purchase than I was to handle the laptop purchase. And honestly, that’s all it really comes down to; being prepared and knowing your financial capabilities.
I wish you all the luck on your credit card journey. Comment below if you correctly guessed which one of my credit card purchases was a better investment.