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It’s undeniable: credit cards are a double-edged sword. When used wisely, they are the key to affording a luxury life while improving your finances. However, the steep interest rates, reward schemes, and high credit limits can make it easy for credit card holders to dig themselves into a hole and build debt.

So, should you use your credit cards to enjoy a lavish lifestyle? Maybe – but you should also be aware of the pros and cons of this choice!

Pro: Using Your Credit Cards Can Help You Build Credit

Every time you use your credit card, the issuer reports your account’s activity to the major credit reporting agencies in the US – Equifax, Experian, and TransUnion.

This data – alongside your financial habits, debt-to-income ratio, and credit utilization ratio – is then used by the bureaus when calculating your credit score.

Your track record with borrowing money and repaying debt can have a profound effect on the kind of mortgage products you’ll be able to access, the amount you’ll be able to borrow through personal loans, and your interest rates.

In turn, using your credit card wisely and repaying your outstanding balance in full and on time each month can help you build long-term financial stability.

Con: But Applying for Credit Cards Can Lower Your Credit Score

Using your credit card for small luxury purchases is one of the best creative ways to improve your credit score – if you can afford your expenses!

However, if you apply for multiple credit cards to keep up your lavish lifestyle, you might notice that your credit score will take a hit.

This happens for two main reasons:

Every time you apply, the credit card issuer will run a hard credit check, which can temporarily lower your FICO scoreApplying for multiple cards at once might send the message that you are in immediate need of funds or have overwhelming expenses, which is a red flag for credit card issuers.

Pro: The Right Credit Card Can Help You Save Money on Luxury Purchases

If you are looking to enjoy a lavish lifestyle, some ad hoc credit cards and their reward schemes can make it cheaper to afford luxurious expenses.

For example, paying for certain expenses with your cards can help you gain points, miles, or discounts, and save you money on your upcoming travel plans.

Con: It’s Easy To Accumulate Debt – Especially if You Can’t Repay More Than the Minimum

According to recent estimates, Americans have an average outstanding credit card debt of $5,525 per capita – which accounts for the second largest source of debt after mortgages.

One of the reasons for the growing credit card debt is that consumers only repay the minimum each month.

Making minimum payments can help you avoid late fees and keep your credit card account in good standing, but it won’t get you closer to reducing your debt – and the longer you have a balance on your account, the more interest you’ll have to repay!

Pro: Credit Cards Are Great To Safely Finance One-Off Purchases

If you are looking to afford a large purchase – such as a new car or an upgrade for your home – using your credit card is a far safer way to finance the life you want than using cash.

Depending on your agreement, your credit card issuer will offer a purchase protection plan that can help you safeguard your investment from scams and damages.

Con: Credit Cards Often Come With High Interest Rates

As reported by the Federal Reserve, the average interest rate charged on credit card accounts is 15.13% – which is almost twice as high as the average interest rate charged on personal loans, which currently stands at 8.73%

If you are looking for the best way to make luxury purchases without worsening your debt, you should consider whether credit cards or personal loans are the better way to go.

Bottom Line

Using your credit card to afford luxury purchases isn’t always the best option to sustain your finances in the long term.

As a rule, you should only use your credit cards to pay for expenses that you can afford, make monthly repayments greater than the minimum allowed, and keep your credit utilization rate below 30%.

When used this way, credit cards are a vital tool to help you improve your credit score, build long-term wealth, and enjoy the little luxuries in life.