Before you charge, have a plan to pay off your debt

Yes, you can buy now, pay later. But know the consequences


Credit Wise
Credit Wise columnist Kevin Weeks
With more than 20 years experience in the nonprofit credit counseling industry, Kevin Weeks joined the Financial Counseling Association of America (, @TrustFCAA) as its president Dec. 1, 2014. Weeks has extensive knowledge of both the credit counseling industry and the FCAA organization, having served in leadership positions for three of its member agencies and on the FCAA board of directors. In addition, Weeks is working with FCAA members to help develop a long-term solution to the student loan crisis through the website Weeks holds a bachelor of science degree in business administration, management information systems from Salem State University.

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Dear Credit Wise,
How much can I spend online with my credit card? Can I buy something online for $2,000 and pay it off later? -- Trevor

Answer Dear Trevor,
You can spend up to your credit limit with your credit card, either online or in person. If your credit limit is $2,000 or more, you can buy whatever you like. However, I would strongly advise that you think about what you are doing before you take this course of action. 

What is the credit limit on your card? If it is $2,000, you will be maxing out your card with one purchase. Even if you have a limit of $2,500, you will be charging 80 percent of your limit. This action will affect your credit score in a negative way over time, because it demonstrates a high credit utilization rate. It is best for your score to keep your credit utilization as low as possible. The lower your utilization, the better your credit score.

No matter what your limit is, though, making an online purchase of $2,000 only makes sense if you have a plan for paying off the purchase. For both your credit score and your overall financial health, you should figure out a plan that will have your debt paid off sooner rather than later. My recommendation is always that you pay your credit card bill in full every month, or at the most over about three months. But I do understand that $2,000 is a rather large amount to pay in full after a month; even over three months, your payments would be almost $700 a month. 

Since you did ask me about paying it off later, I used the minimum payment calculator to see how this would work for you. I plugged in a $2,000 balance at an interest rate of 15 percent with the most-common minimum payment (interest plus 1 percent of the principal). That yields an initial minimum payment of $45 a month. That doesn't sound too bad, does it? The kicker is that it will take you 124 months -– more than 10 years -– to pay off this debt. In addition, you will pay $1,632 in interest alone on this purchase.

You may have a better interest rate than what I calculated. If, for instance, you have a 0 percent interest card for 18 months, you could pay about $112 a month and have the balance paid off within the no-interest window. While that is more than double the minimum from the above scenario, you'd be out of debt in one year instead of 10, and not pay a penny of interest.

Whatever you decide to do, just be sure you have thought it through. Making a $2,000 online purchase may not be the best use of your resources. If you go ahead, come up with a plan to pay the purchase off as soon as you possibly can.

Be wise with your credit!

See related: How your card issuer calculates minimum payments

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Published: February 13, 2016

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