You’re ready to pop the question. Now how to pay for that diamond engagement ring? In looking at your financing options, a credit card may seem like the natural solution, but there are some important factors to consider before you decide it’s the best way to buy the bling.
Here are some pros and cons to know before you decide to buy a credit card with an engagement ring, and tips to make sure it doesn’t cost you more than you intend.
You buy some time to pay the ring off
Brides magazine says the average amount spent on an engagement ring was about $7,800 in 2018. In 2017, the average was only about $5,000.
Assuming you charge the engagement ring on a credit card that includes a grace period, interest rate charges won’t apply to your daily balances. That means you’ll get at least three weeks from the time you purchase the ring, to the time you’ll have to pay for it. (The exact grace period varies by card issuer, but the Consumer Financial Protection Bureau (CFPB) says the card issuer must deliver your bill at least 21 days before payment is due). If you pay the full amount you charged for the ring by your monthly payment due date, your credit card issuer will have essentially given you an interest-free loan for a few weeks.
Some cards, such as the BankAmericard® credit card, offer a no interest introductory promotional period that can allow you up to 18 months until you will be charged interest. When getting a new credit card, be sure to check the length of the low-interest intro period and balance that with the high interest rates you could see once the intro period ends.
You may get an extended warranty
Many cards now include an extended warranty on certain items. You’ll have to read the fine print on the credit card you’ll use to purchase the engagement ring to confirm, but purchasing the engagement ring on a card can add some additional purchase protection if the item is damaged during the warranty period. For example, Visa says that if the manufacturer warranty is less than one year, it will double the warranty period. It adds a one year warranty to a manufacturer warranty that spans between one and three years.
If you charge a $7,000 engagement ring on a rewards credit card that pays 1% cash back on all purchases, you earn $70 for using your credit card. The exact earning potential will depend on your credit card’s terms. Many issuers limit the purchase amount that qualifies for rewards. Make sure to read the terms of your specific card program to confirm how much using the card will earn you.
If you buy a $7,000 engagement ring with a credit card that has a 15% interest rate and don’t have the cash on hand to pay the balance in full, the price of proposing could be more than your budget allows. You could be making monthly payments for more than two years after you’ve proposed, and could pay at least $1,300 extra in interest charges as a result.
You could accidentally lower your credit score
Credit utilization (how much of your available credit is in use) is the second most important factor in your credit score calculation. Experian says cardholders should use no more than 30% of their credit line at any given time. A higher credit utilization may cause a potential lender or creditor to think you are a risky borrower who is relying too heavily on credit. If you charge a $5,000 engagement ring on a credit card with a $10,000 credit limit and no other balance, for example, you’ll have pushed your credit utilization to 50%.
When you don’t pay the balance immediately and start charging other items in preparation for your wedding, your utilization rate will climb. And when you apply for other credit cards in the future, or buy a home with your new spouse, you’ll want your credit score to be as high as possible.
Tips for buying a ring with a credit card
If you are going to buy an engagement ring with a credit card, remember these tips:
- Budget before you shop. Determine how much you can reasonably afford based on your income, other debts and financial goals.
- Start saving now. Calculate how much you’ll need to save each month based on when you plan to propose. Establish a fee-free savings account that will pay you some interest on your deposit so you can earn extra cash while you save.
- Spend only the amount of money you have saved in cash. (Don’t forget about sales tax or extended care plans).
- Use a card that rewards you for your purchase.
- Use a card with a high credit limit, and little to no existing balance.
Mark your calendar to pay the balance off in full by the payment due date. If credit cards aren’t your thing, other finance alternatives are out there. If you have good credit, a personal loan is a low interest option that could work for your situation. Rocket Loans, for instance, has APRs as low as 7.161% that could be great for someone paying off the loan with minimum monthly payments.