By Roman Shteyn of Credit-land.com
NEW YORK (TheStreet) -- With great credit limits comes great responsibility. Just because you have plastic power doesn't mean you should wield it without careful consideration, especially if you're contemplating a large purchase that you might not be able to pay off in full when the bill arrives. Here are some questions to consider before you swipe.
What will be the actual cost if I can't pay if off in full? The real issue with using credit for a purchase is that it could turn out to be the debt that keeps on giving. That purchase will accrue compound interest each month you don't pay it off, and it could end up being a whole lot more expensive over time. If you don't plan on paying your balance off in full, consider this: Before you buy, add another 20% to the price tag of the item in your head. Ask yourself if you'd be comfortable with paying that inflated price (keeping in mind that it could even go higher over time if not paid off). If you're having second thoughts, it could be a sign that you should hold off.
Can I save up enough to pay cash if I wait a few weeks? Except for a few rare instances, items of interest will likely be available if you wait it out while you save up. In fact, they may even go onto the sales or clearance rack. Sometimes giving yourself a waiting period, even if it's just 24 hours, can help you avoid making an impulse purchase you'll end up regretting. But if there is something you simply must have, explore other payment options, such as asking if layaway is available or if you can leave a cash deposit to hold the item.
Will using a credit card help if I need to return the item or extend the warranty? There are times using a credit card is necessary, like when you are paying for an expensive item and want a little added protection should it end up defective or not to your liking. Most major creditors are good about helping their customers with returns, or even offering an extended warranty period, and will intervene if a merchant or manufacturer is being uncooperative. Find out what type of consumer protections your card issuers offer, so you can make an informed buying decision. MasterCard (MA), for example, offers purchase protection and extended warranties.Will I get my money's worth? Sometimes buying something expensive is actually a wise investment if you'll get good use out of it. For instance, a sharp suit could make a great impression on a job interview, or a new energy-efficient appliance in your home that you'll use for years might be worth the higher price and save on utility bills in the long run. On the other hand, consider if you really need a particular item. If you do need to buy it, consider applying for a credit card with 0% interest on purchases to give you up to 18 months to pay down the balance interest free. By thinking through large purchases, and even the small ones, you'll learn to spend more responsibly and avoid buyer's remorse and unwanted debt. Roman Shteyn is co-founder of Credit-land.com. He writes frequently on personal finance and credit-related topics.
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