Do you want to buy the latest television but don’t have any cash yet? Swipe your credit card! Does your phone no longer support new apps? Then, use your credit card and buy the latest phone! Do you think it’s time to replace the furniture in your living room? You do? Well, swipe your credit card again, and there you go, brand new furniture!
There’s just that pesky little issue of having to pay the bill. You see with large purchases come credit card bills that are equally large.
But that doesn’t mean you shouldn’t use your credit card to make big-ticket purchases. In fact, charging these transactions to your card is probably the easiest way to rack up points, air miles, or meet the minimum spend requirement on your card.
Here are 5 tips to follow to use your credit card to make large purchases you can’t really afford:
1. Convert Your Purchase to Instalments
Almost all banks offer 0% interest instalment payment plans on the credit cards they issue. What this essentially means is that if you opt for this plan, you can split your purchase into affordable instalments. So, instead of having to somehow come up with a large amount of money to pay your credit card bill, you can spread the amount over a fixed period. Most banks offer 0% interest instalment payment plans for tenures ranging from 3 months to 36 months.
Many banks offer a choice of instalment payment plans with 0% interest or charge a low interest rate for converting purchases into instalments. Depending on the type of purchase you wish to make, you can choose a plan accordingly. For instance, Maybank has an instalment payment plan called Posh EzyPay that is specifically meant to convert purchases made at select luxury boutiques into interest-free instalment payments.
Sounds great, doesn’t it? There is a catch though.
While you may not have to pay any interest, based on the amount you are converting and the tenure you opt for, you will also be charged a processing fee that can be as high as 6% of the transaction amount. Moreover, in most cases, you won’t be able to earn any reward points, cashback, or air miles on transactions that are converted to instalments. Other than the OCBC Cashflo Credit Card and Standard Chartered credit cards, there are currently no cards in Singapore that reward instalment purchases.
However, it is still one of the best ways to buy big-ticket items while ensuring that your bills are paid on time and you don’t go into debt!
2. Pick and Choose the Purchase
Not all big-ticket items should be purchased using your credit card since the costs of using your card to buy them far outweigh the benefits. For instance, it would make no sense buying jewellery with your credit card. You would rather just use cash instead.
However, if you want to buy electronic items such as a refrigerator or an air conditioner, then you should use your credit card. The simple reason being that most credit cards come with purchase protection as an added benefit. So, if the coolant from your refrigerator starts leaking within a few months, you can get it repaired for little to no cost.
There is also the added benefit of those wonderful rewards you get when you swipe your card for large amounts!
Keep in mind, though, that not all cards offer purchase protection and if they do, not all products are covered under it. So, be sure to read the terms and conditions carefully before you decide to splurge.
3. Leave 10% to 20% of Your Credit Limit Each Month
It is extremely easy to use your credit card to buy whatever you want and then convert it to instalments. But keep in mind that the credit limit on your card reduces by the entire amount of the purchase you have made, even if you choose to make payments via instalments. This shouldn’t lead to a case where you end up swiping your card and going over your approved credit limit since you will end up paying heavy fines. Banks usually charge an overlimit fee of approximately S$40 each time your credit card account is over limit. Additionally, this could also adversely impact your credit score.
And if you choose to close an instalment payment plan before the completion of its tenure can lead to high fees for early closure.
A good rule of thumb to follow is to make sure that your credit limit is enough to cover at least 10% to 20% more than your usual monthly expenditure. This will ensure that if you do need to make a big-ticket purchase, you won’t be exceeding your credit limit.
4. Figure Out a Source of Money to Pay Your Bills
If you have a credit card that doesn’t reward instalment payments (which are most of the credit cards available in Singapore), your big-ticket purchase can help you rack up rewards easily. In such cases, you will be required to make the payment for your purchase the next month.
If you use your credit card to make a large purchase, also think about where you are going to get the money the following month to make your payment. It could be that you are expecting some extra money to come in or an investment to mature. Whatever the source, always know where the money is going to come from. This is important since not having enough to cover the bill means that you will only end up paying the minimum amount. As a result, you will incur high rates of interest that could spiral into credit card debt if you aren’t careful.
5. Use the Right Credit Card
The importance of using the right credit card cannot be stressed enough. If you are someone who generally makes purchases online, even large purchases, then use a credit card that offers rewards on online spends, or better, use one that earns rewards even on purchases that you convert to instalments. Also, using a card that offers purchase protection can save you a fortune in case of defective items, non-delivery and other related issues.
If you decide to book your holiday with your credit card, then use one that provides comprehensive travel insurance coverage. This way, you are at least protected in case of any unforeseen circumstance.
Remember, you can use your credit card for large purchases that you can’t afford. It’s even a good idea to do so! Just make sure that your bills or instalments are paid on time so that you can make the best use of your card. And most importantly, don’t forget to review these tips from time to time!
All of this will ensure that you aren’t living with worry and guilt while you wait for your new living room furniture to arrive!