Emergency expenses happen, leaving you little time to pick the optimal credit card to use. But many major purchases can be planned well in advance, giving you a chance to consider the cards you already carry, or even apply for a new one before you go shopping.
If you’re about to drop a paycheck’s worth of money on jewelry, a plane ticket, a home appliance or another expensive item, carefully choosing the credit card you use can help you save. So before you head to the store or click “add to cart,” plot out your payment strategy. Here are some potential reasons to pick one card over another.
The card with a big sign-up bonus
Many credit cards offer enticing welcome offers worth hundreds of dollars in cash back and travel rewards, but you need to spend a lot to earn them — typically $500 to $5,000 in around three months. A big purchase can get you at least most of the way there without busting your budget, since it was an item you were already planning to buy. This approach is especially helpful if you wouldn’t otherwise spend enough within three months to earn a bonus.
Take care not to justify buying an item that’s more than you can afford just to earn a bonus. If you get into debt, the cost of the interest you’d pay can wipe out the bonus’s value. For example, if you carry a $3,000 balance on a card charging a 20% annual percentage rate and you make $150 monthly payments toward the debt, you’ll spend $680 on interest by the time you pay off the balance. That could easily outstrip the typical sign-up bonus on many cards.
Nerd tip: Hoping that new sofa will earn you enough miles on a travel rewards card to take a discounted vacation? NerdWallet recommends applying for a card several months before you intend to book award travel. That’s because it can take a few months to earn the sign-up bonus, plus another billing cycle for the points to appear in your account.
The card that earns the most rewards points for your purchase
If you’d prefer to use a credit card you already have, find out which one will earn the highest rewards rate for the kind of purchase you’re making.
- A store credit card could be a good choice if you plan to buy from a specific retailer and you already carry the retailer’s co-branded credit card. Some store cards offer benefits like higher rewards 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 fit. Some of these cards earn extra points on travel purchases, for example. Others offer rotating bonus categories at merchants where you could spend some serious money, like home improvement stores or wholesale clubs.
- A flat-rate cash-back card earning 1.5% cash back or more on every purchase is an easy way to save without a lot of effort.
The card with the most protections
Protecting a purchase matters, 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 sideways. You must use the card with the protections to make the purchase. Simply carrying the card isn’t going to help you.
- Purchase protection and extended warranties can help if your item is damaged. Exclusions can apply, so review your card’s policies before you buy.
- Price protection can be useful if you spot the item advertised at a lower price than what you paid. This perk 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 must cancel or shorten your trip for a covered reason, like illness. Again, exclusions can apply.
The card that offers 0% interest
A card that charges 0% APR on new purchases can give you a long time — even a year or more — to pay down 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 around $167 per month and pay down the debt before that promotional period ends and the card’s ongoing APR kicks in. Compared with a card that charges 18% APR with no 0% APR promotion, you’re saving $353 in interest. You’ll owe interest on any remaining balance after the no-interest promotion ends.
Some store credit cards also offer deferred-interest deals. But unlike true 0% intro APR offers, if you have any remaining balance at the end of a deferred-interest promotion, you’ll actually owe interest on the total original purchase amount, retroactive to the transaction date.
Another tactic to consider: Combining multiple cards
Splitting a large purchase across more than one card can be a way to maximize the benefits. You could charge half to a new card and make decent progress on earning a sign-up bonus, and then charge half to a card that earns a high rewards rate at that merchant. Or you could charge a portion to a card with a 0% APR promotion to essentially finance part of the purchase.
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Sara Rathner writes for NerdWallet. Email: [email protected] Twitter: @sarakrathner.