Make sure you have a plan to pay it off.
With a credit card, you can spend up to the credit limit. For example, if you have a $10,000 credit limit, then that's the maximum balance the card can carry. But if you've always used your credit card for everyday expenses, you might be wondering what will really happen with bigger purchases, like more than $5,000 in spending.
There are several ways this can affect you. Some could be issues, but there's also a potential benefit. If you're planning to spend over $5,000 on your credit card, or you just want to know what would happen if you did, here's what to expect.
It could lead to credit card debt
If you spend more than you can afford with your credit card, you'll end up in credit card debt. That's a situation you never want to be in, because credit cards have high interest rates. In fact, the average credit card interest rate recently surpassed 20%. That means a $5,000 balance could cost you over $1,000 per year in credit card interest.
The best thing to do with your credit cards is to pay them in full every month. Only spend what you can afford to pay off with money in your bank accounts. If you absolutely need to make a big purchase you can't pay off right away, check out 0% intro APR credit cards. These charge no interest on purchases during an introductory period, which can last 12 months or longer.
You'll increase your credit utilization and possibly lower your credit score
One of the major factors in your credit score is your credit utilization ratio. Credit bureaus calculate this by taking your card balances and dividing them by your credit limits. To avoid hurting your credit score, it's recommended to keep your credit utilization below 30%.
Let's say you have one credit card with a $1,000 balance and a $10,000 credit limit. That's a 10% credit utilization, which means you're doing great. Then, you spend $5,000, bringing your balance to $6,000 and your credit utilization to 60%. That would negatively impact your credit score.
Featured offer: save money while you pay off debt with one of these top-rated balance transfer credit cards
Keep in mind that only your current credit utilization matters. If you pay off your credit cards and bring your utilization back down, then your credit score will be fine. Another option, if you often make big purchases, is to look into high limit credit cards. Since these offer higher credit limits, they help you keep your credit utilization lower.
The credit card company may get in touch with you
Credit card companies monitor accounts for fraud, and large purchases are a warning sign they look for. When you attempt a large purchase, your card issuer could reach out to confirm you're really the one making it. It may also decline the transaction until it has your confirmation that everything's on the up and up.
Generally speaking, this is more likely with larger transactions, but it also depends on your normal spending habits. There may be a fraud alert if you spend more than $5,000 on a single purchase. Or, it may not happen unless you spend more than $10,000 on your credit card. It depends on you and your card issuer's fraud controls.
If your card issuer declines the transaction, you'll need to confirm that it's legitimate. Once you do, you'll be able to attempt it again, and the purchase should go through.
You could use that spending to earn a sign-up bonus
Big purchases can be a great way to maximize your credit card rewards. If you have a rewards card, you'll earn cash back, points, or miles on your purchases. You could also take advantage of your spending to earn a sign-up bonus.
For most sign-up bonuses, the only requirement is to spend a certain amount within a time limit. For example, a card could offer a bonus of 50,000 points or $500 cash back to new cardholders. To earn it, you simply need to spend $5,000 in the first three months. If you plan to spend more than usual soon, you could use that to get a bonus you wouldn't qualify for with your regular spending.
It’s important that you only make purchases you were planning to make anyway. If you need to spend $5,000 or more on furniture or a home remodel, by all means, get a bonus out of it. But don't use a sign-up bonus as an excuse to waste money.
You shouldn't have any trouble spending more than $5,000 on your credit card if you have the available credit. But the fact that it's easy to spend this much is also one of the dangers of credit cards. If you overspend, you could find yourself stuck in credit card debt and incurring hefty interest charges. To avoid this, set limits on how much you'll spend and plan to always pay your credit card in full.
Alert: highest cash back card we've seen now has 0% intro APR until 2025
If you're using thewrong credit or debit card, it could be costing you serious money.Our experts love this top pick,which featuresa0% intro APRfor 15 months, an insane cash back rate of up to 5%, and all somehow for no annual fee.
In fact, this card is so good that our experts even use it personally. Click here to read our full review for free and apply in just 2 minutes.
Readour free review
As a seasoned financial expert with extensive knowledge in credit management and personal finance, I want to delve into the intricacies of managing credit card usage, particularly when it comes to making substantial purchases exceeding $5,000. My experience in this field is underscored by a deep understanding of credit card dynamics and a commitment to empowering individuals with sound financial advice.
Firstly, it's crucial to acknowledge the potential pitfalls of uncontrolled credit card spending, especially when venturing into larger purchases. The article rightly points out the risk of accumulating credit card debt, emphasizing the high-interest rates associated with such debts—exceeding 20% on average. This keen awareness is vital, as it demonstrates a grasp of the financial implications that individuals may face if they overspend on their credit cards.
The recommendation to pay off credit card balances in full every month aligns perfectly with best practices in credit management. It showcases a practical approach to avoiding the burdensome interest payments that can quickly accumulate, providing concrete steps for financial responsibility.
The discussion on credit utilization and its impact on credit scores further attests to a comprehensive understanding of credit dynamics. The mention of keeping credit utilization below 30% reflects an awareness of the factors influencing credit scores and the potential consequences of exceeding recommended thresholds. This insight is essential for individuals aiming to maintain or improve their creditworthiness.
Moreover, the article introduces the concept of 0% intro APR credit cards as a strategic option for managing larger purchases. This recommendation underscores a nuanced understanding of available financial tools and their potential benefits for consumers. It demonstrates an awareness of practical solutions, such as leveraging introductory periods without accruing interest.
The article's exploration of credit card companies monitoring for fraud and potential interactions with cardholders during large transactions showcases an understanding of the security measures in place within the credit industry. This insight contributes to a well-rounded discussion on the potential consequences and safeguards associated with significant credit card transactions.
Lastly, the recognition of credit card rewards and sign-up bonuses as potential benefits for responsible spenders highlights a nuanced understanding of credit card perks. This advice emphasizes the importance of making intentional purchases and leveraging rewards without succumbing to unnecessary spending—a testament to a balanced and informed perspective on credit card usage.
In conclusion, my expertise in financial matters enables me to endorse the advice presented in the article, as it aligns with established best practices and reflects a nuanced understanding of the complexities associated with credit card management, particularly in the context of substantial expenditures.
