Should you purchase gadgets on credit?

Credit rewards programs add value to large credit purchases 

By Richard Craft 

With one simple swipe of a card, most consumers can own the most exciting new gadgets -- from tablets and smartphones to device locators and bluetooth headsets. Despite this being a convenient way to pay, Americans certainly seem to have a problem with this method. The U.S. added $48 billion in credit card debt in 2011, according to CardHub, a website which compares credit cards. 

New electronic gizmos on credit, however, may or may not be a decision that makes sense. In determining whether buying gadgets on credit is a sound financial move, consumers should consider several factors, not the least being whether they are bettering their financial positions or increasing their burdens.

Improving credit history 

It may seem counterintuitive to think that using credit cards to make purchases, especially large ones, could help an individual's financial position. For consumers to build a better credit history, however, they must prove to credit bureaus that they can successfully handle financial obligations. An expensive gadget purchase can do just this, as long as the buyer is committed to managing the purchase wisely. For example, a person who uses a credit card to buy a hot new tablet for $700, then pays more than the minimum payment until the device is paid for, is proving they have the funds and responsibility to pay for their purchases in a timely fashion. Paying off purchases this way often bumps up a credit score. 

Credit benefits programs 

Using a credit card to buy new gadgets, whether a store card or one from a credit card company, often has other benefits. Many cards allow consumers to enroll in rewards programs, giving cash back or points to spend on flights or goods. Often, major credit card companies offer extra warranty protection for certain electronics purchases. Even if a card doesn't offer warranty protection, it is likely that the card's features include some type of claim dispute system. Paying cash for an iPad found on Craigslist won't incur debt, but the buyer has to work harder to dispute the sale if the device malfunctions.

Examine your current situation 

For individuals suffering from financial ills, however, these benefits may not be worth potentially making their credit situation worse, especially if buying a new device isn't going to help bring up their credit. Individuals who buy that hot new tablet for $700, then don't make even the minimum payments, are not only hurting their credit history -- they are most likely paying more for their new gadget, thanks to late fees and interest payments. Emergencies also happen, and having the money to pay credit card bills today doesn't guarantee having the money tomorrow. Money troubles are usually stressful, so instead of buying the latest electronic toys, people with debt or limited funds would be better served by eliminating debt or saving, then buying a gadget when they can truly afford it. 

Weigh the possibilities

 

Because everyone's financial situation is different, there's no definitive answer to whether credit should be used to buy a new gadget. Before making this decision, consumers should ask themselves if their new purchases are going to help or hurt; do the potential rewards outweigh the potential downsides? And for those consumers who find they must wait before purchasing -- take heart. After all, electronic gadgets tend to become less expensive and more feature-laden with every generation.

About the author: This article was written by Richard Craft, an MBA student who looks forward to helping you make better financial decisions. He recommends getting a tablet keyboard for your tablet in order to make the most out of it. Take a look at kensington.com for more information.