How Using the Right Credit Card Can Help You Save on a Big Purchase

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This article is reprinted with permission from NerdWallet. Emergency expenses do occur, leaving you little time to choose the optimal credit card to use. But many major purchases can be planned well in advance, giving you the opportunity to consider the cards you already have, or even request a new one, before you go shopping.

If you’re about to spend the money from a paycheck on jewelry, an airline ticket, an appliance, or another expensive item, carefully choosing the credit card you use can help you save. So before you go to the store or click “add to cart”, map out your payment strategy. Here are some possible reasons to choose one card over another: The card with a great sign-up bonus Many credit cards offer attractive welcome offers worth hundreds of dollars in cash back and travel rewards, but you have to spend a lot to win them. typically $ 500 to $ 5,000 in about three months. A large purchase can take you at least most of the way without breaking your budget, as it was an item you were already planning to buy. This approach is especially helpful if you wouldn’t otherwise spend enough in three months to earn a bonus. Be careful not to justify purchasing an item that is more than you can afford just to earn a bonus. If you go into debt, the cost of the interest you would pay can wipe out the value of the bond. For example, if you have a balance of $ 3,000 on a card that charges a 20% annual percentage rate and you make monthly payments of $ 150 on the debt, you will spend $ 680 in interest when you pay off the balance. That could easily beat the typical sign-up bonus on many cards. Nerd Tip: Do you hope that with the new sofa you will get enough miles on a travel rewards card to enjoy a discounted vacation? NerdWallet recommends applying for a card several months before you intend to book award travel. This is because it can take a few months to earn the sign-up bonus, plus another billing cycle for the points to appear on your account. Check out: The Caribbean on a Budget: How to Take a Post-Vaccine Getaway The Card That Earns the Most Reward Points for Your Purchase If you prefer to use a credit card you already have, find out which one will get the highest rewards rate for the type of purchase you are making. A store credit card might be a good option if you plan to shop at a specific retailer and you already have the retailer’s co-branded credit card. Some store cards offer benefits such as higher reward rates for in-store purchases or longer return periods. A tiered rewards card that earns a higher rate on certain purchases may be a good option. Some of these cards earn extra points on travel purchases, for example. Others offer rotating bonus categories at merchants where you could spend a lot of money, such as home improvement stores or wholesale clubs. A fixed rate cash back card that earns 1.5% cash back or more on every purchase is an easy way to save without much effort. More: 8 Tips to Maximize Your Credit Card Rewards The Card with the Most Protections Protecting a purchase is important, especially when you’ve spent a lot of money. Some cards offer benefits that can help you get your money back in certain cases when you buy an expensive item or your travel plans go off track. You must use the card with the protections to make the purchase. Simply carrying the card will not help you. Purchase protection and extended warranties can help if your item is damaged. Exclusions may apply, so check your card policies before purchasing. Price protection can be useful if you detect the advertised item at a lower price than what you paid for. This benefit is harder to find these days, but a handful of cards still offer it. Travel protections can include coverage for lost, stolen or damaged luggage. You can also get money back in the event of a significant travel delay, or if you need to cancel or shorten your trip for a covered reason, such as illness. Again, exclusions may apply. The 0% Interest Card A card that charges 0% APR on new purchases can give you a lot of time, even a year or more, to pay off a large balance. This option can save you a significant amount if making smaller monthly payments works better for your budget. If you charge $ 2,500 to a card that offers 15 months interest-free, for example, you can pay about $ 167 per month and pay off the debt before the promotional period ends and the card’s current APR begins. Compared to a card that charges 18% APR with no 0% APR promotion, you are saving $ 353 in interest. You will owe interest on the remaining balance after the promotion ends without interest. Read: 5 Signs of a Predatory Credit Card Some store credit cards also offer deferred interest offers. But unlike true 0% introductory APR offers, if you have any remaining balance at the end of a deferred interest promotion, you will actually owe interest on the full amount of the original purchase, retroactive to the date of the transaction. Multiple Cards Splitting a large purchase into more than one card can be one way to maximize profits. You can charge half to a new card and make decent progress in earning a sign-up bonus, then charge half to a card that earns a high rewards rate at that merchant. Or you can load part of it onto a card with a 0% APR promotion to essentially fund part of the purchase. More from NerdWallet Sara Rathner writes for NerdWallet. Email: srathner@nerdwallet.com. Twitter: @sarakrathner.