Credit cards can be a useful tool, helping you meet large expenses when you don’t have the funds immediately available. When used responsibly, credit cards can help you manage your budget as your cash flow fluctuates.
But even if you have the cash on hand to pay for a large purchase in full, you might want to consider putting it on a credit card anyway. Here’s why.
1. Earn a signup bonus
In order to attract customers, many credit card companies offer a signup bonus when you open a new rewards card, according to Steffa Mantilla, Certified Financial Education Trainer (CFEI) and founder of the personal finance website. . Money tamer. This usually involves spending a certain amount of money on the card within a certain time frame, she said. For example, you might need to spend $ 3,000 in the first three months after opening the account. But if you succeed, the bonus could be worth hundreds or even thousands of dollars.
“A lot of the thresholds are low and easy to hit, but cards with higher bonus points generally have a harder time meeting spending targets,” Tamer explained. “If you are planning to apply for one of these cards, do so a week or two before a planned large purchase. That way you can put the expense on the new credit card and hit the points threshold.
2. Borrow money without interest
Another tactic used by credit card companies to attract new business is to offer 0% APR for a limited time, say 12 to 18 months. During this introductory period, you can debit transactions on the card and pay no interest on the balance. Once the introductory period is over, the interest rate is reset (today’s average rate is 16.16%).
“As long as you have a plan to pay it off within that time frame, it’s practically a free loan,” said Dustyn Ferguson, blogger at Dime will say. By spreading the cost of your purchase over time, without interest, you have more money to spend on other major expenses, such as bills, loan repayments, or your monthly 401 (k) dues.
3. Get rewarded
Aside from signup bonuses, there are other ways to earn free money on any expenses you have to make anyway. “Using the right rewards card can also help you earn valuable rewards on a major purchase, whether it’s cash back to pay off your statement balance or travel or credit points. airline miles that can offset the cost of future vacations, ”said mr.expert in economy and budget, Andrea Woroch.
Again, if you are using this strategy, it is important to pay off the balance immediately so that you do not accumulate interest charges. Otherwise, any savings you receive in the form of points or cash back will be quickly wiped out.
4. Enjoy extra protection
Credit cards can offer a lot of layers of protection that you just won’t get when using cash, Woroch said. On the one hand, there are protections for credit card users who are victims of fraud. If someone makes an unauthorized purchase with your credit card, the transaction can be canceled immediately and you won’t be held responsible for more than $ 50 (although most issuers won’t charge you anything).
When it comes to making a large purchase, some cards offer a number of other protections. For example, many major credit cards extend the manufacturer’s warranty at no additional cost. “If you are paying in cash, you might be tempted to purchase extended warranty coverage, which can be expensive,” Woroch said. Other benefits your card may offer include price protection, purchase protection, or even an extension of the time you have to make a return.
Use caution when making a large purchase with a credit card
It’s important to understand that using a credit card for a large purchase is a good idea when you’re managing your balance properly. Allowing the debt to linger on the card will likely negate any benefits you received initially.
“Definitely don’t open a credit card for a large purchase if you’re not sure you can pay it off,” Ferguson said. After all, the unexpected happens. An emergency like losing your job or having a health problem could turn a simple credit card bill into heavy debt. “Ideally, you have cash reserves that would allow you to pay your credit card bill in case something happens. ”
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Last updated: October 18, 2021
This article originally appeared on GOBankingRates.com: Why you should open a credit card when planning a large purchase