You Might Not Realize What Happens When You Spend More Than $5,000 on Your Credit Card

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Credit cards increase your spending power, which has its pros and cons. If you have good credit, you could get approved for credit cards with limits of $10,000 or more, even if you don't earn a large income.

While a credit card can be a convenient way to pay your bills, it can also get you into trouble if you spend too much. To give you an idea of the risks, here's what can happen if you spend more than $5,000 on a credit card.

It could lower your credit score

If you spend a lot of money on your credit card, you might be in for an unpleasant surprise the next time you check your credit score. One of the main factors in your credit score is your credit utilization. This is calculated by dividing your credit card balances by your credit limits.

Let's say you have one credit card with a $10,000 limit. If the balance is $1,000, your credit utilization is 10%, which is excellent. The rule of thumb is to keep credit utilization below 30% to avoid hurting your credit.

If your balance is $6,000, then your credit utilization is 60%. That will cause your credit score to drop. Some people have seen their credit scores decrease by over 30 points because of high credit utilization.

You could incur costly interest charges

The biggest danger with credit cards is credit card debt. The average interest rate on credit cards that charge interest is 22.76%, according to Federal Reserve data.

At that rate, a $5,000 balance would cost you about $1,130 per year in interest. That's nearly $100 per month. Credit card debt can also be hard to pay off, since you can continue using your card and only need to make small minimum payments every month.

If you're currently dealing with credit card debt, put as much money as you can toward it every month. The more you pay, the faster you'll be out of debt and the less you'll spend on interest. Balance transfer credit cards can also help with getting free of debt. These have a 0% intro APR on balance transfers. You can transfer over your debt and pay it down interest free during the intro period.

You may have trouble using your credit card

Credit card companies have fraud protection. One of the ways they protect themselves and their cardholders is by declining suspicious transactions, such as large purchases.

If you try to spend over $5,000 in one purchase, your card could get declined. Your card issuer would then reach out to you, typically by email or text message, to check if that was a legitimate purchase attempt. After you confirm that it was, then you'll be able to make your purchase.

When spending a large amount, you'll also need to be mindful of your card's credit limit. If you attempt a transaction that would put your card's balance over the credit limit, the card issuer will likely decline it.

You can avoid issues by paying off your balance in full

Spending over $5,000 on your credit card isn't always a bad thing. If that's what your monthly bills cost, there's nothing wrong with putting those bills on your credit card. What's important is that you pay off your full credit card balance every month.

When you pay your credit card in full, you aren't charged any interest on your purchases. You could even come out ahead if you pay for everything with a rewards credit card. For example, some cash back cards earn 2% on purchases. At that cash back rate, $5,000 in spending would earn you $100 back.

It's smart to be careful about your credit card spending. The simplest strategy is to only use your credit card for purchases you can afford with money in your bank account. If you do that and pay your card balance in full every month, you'll be safe from credit card debt.

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