For Large Purchases and Small, Credit Cards Pay the Bill
More Americans are using credit cards to make purchases of less than $5. And among some age groups, large credit card purchases are becoming more common.
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[cnxvideo id=”655415″ placement=”ros”]There was a time, not so long ago, when some merchants displayed signs setting a lower limit for credit card transactions of around $10. It becoming more common for U.S. consumers to pay for even smaller purchases with credit cards, and merchants have mostly dropped minimum transaction amounts.
According to a new survey conducted by CreditCards.com, 17% of Americans polled said they use credit cards for purchases valued at $5 or less. A year ago only 11% did so. Credit card holders who prefer using cash for small purchases fell by three percentage points year over year to 55%, and debit card use also fell by three points to 24%.
Typically younger consumers use plastic more than the elders for small purchases. More than half (53%) of millennials prefer to pay for small purchases with a credit or debit card, while 70% of baby boomers still prefer to use cash for purchases of less than $5.
The survey also revealed that 57% of card holders used credit cards to make large purchases (at least $500). Part of the reason for the strong showing is that credit cards nearly always offer some reward or protection program that consumers see as valuable. More than a third of Gen Xers (35%) said they made an average of five or more large purchases last year.
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CreditCards.com senior industry analyst Matt Schulz commented on the use of credit cards for large purchases.
Big purchases are a great chance to rack up credit card rewards, as long as you do it responsibly. Save up for what you want, then sign up for a new credit card to pay for it. If you’ve got good credit, it’s an easy way to bring down the real cost of these big-ticket items.
With a little advance planning, you can use credit cards to save big when making those purchases. Here’s a strategy that Schulz recommends:
- Save the cash to make the purchase.
- A couple of weeks before you buy, apply for a new credit card that offers a $100 or $150 cash back bonus after you spend $500 in the first three months.
- Use that card to make your big purchase, thus meeting the minimum spending threshold to get the signup bonus.
- Use the saved cash to pay the credit card bill.
- Get your cash back bonus.
Visit the CreditCards.com website for more details about the credit card study.
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Paul Ausick has been writing for 247Wallst.com for more than a decade. He has written extensively on investing in the energy, defense, and technology sectors. In a previous life, he wrote technical documentation and managed a marketing communications group in Silicon Valley.
He has a bachelor's degree in English from the University of Chicago and now lives in Montana, where he fishes for trout in the summer and stays inside during the winter.
