Photo (cc) by James Willamor
Here’s a question I recently got; it’s a common one.
Question: I’ve saved up enough to pay for a new flat-screen TV in full, but I’m thinking of signing up for and using a cash-back credit card to get a little bang for my buck. Which credit cards are best for big purchases and why? -Peter
Don’t carry a balance
Peter’s got the right idea by paying for his flat-screen in full, as soon as the bill comes due.
You use a credit card for convenience or to get a reward, not to carry a balance. That’s rule number one. Rule number two: If you’re using plastic because you can’t afford what you’re buying, don’t buy it.
Carrying a balance means paying interest. Paying interest simply adds to the cost of whatever you’re buying. And if you pay only the minimum, you could double the cost and be paying for years.
In addition, carrying a balance increases the amount of debt you’re reporting to credit reporting agencies, which could negatively impact your credit score.
Paying it off? Plastic’s the way to go
If you’re planning on paying for your purchase right away, definitely use a cash-back credit card. You’re certainly not going to be getting money back by paying with cash or a debit card, so you might as well take advantage of the rewards afforded by cards that pay you back.
That said, not all cash-back cards are created equal, and the best cards are the ones that offer a one-time $100 cash-back bonus after spending a specific amount over a given period of time. These credit cards are the best for big purchases because they can save you $100 in one credit card swipe.
Example: The Chase Freedom card offers cardholders $100 cash back after making $500 in purchases within the first three months of opening the account. Depending on how expensive Peter’s flat-screen is, he’ll get an immediate $100 plus another 1 percent of the total simply by getting this card.
The only catch? This credit card is reserved for shoppers with good-to-excellent credit. In fact, just about all of the best cash-back options for big purchases require really good credit. If you don’t have it, your odds of getting approved for plastic like the Chase card are slim.
However, if Peter’s credit is above average or excellent, there’s more than one $100 cash-back offer available. The Chase Freedom card is particularly strong since it also offers 5 percent cash back on up to $1,500 in purchases made on quarterly rotating categories. But you have to enroll for the rewards and the categories might not apply.
And while we urge you to never use credit cards you won’t pay off immediately, this card includes a zero-percent introductory period applied to purchases for up to 15 months. So you’ll have time to pay this purchase off without interest if need be.
If you prefer a simpler cash-back card with no enrollment program, the Capital One Cash Rewards is another to consider. The introductory cash-back offer is the same – spend $500 within three months of account opening and receive the $100 cash-back bonus – and the ongoing cash-back program includes 1 percent on all purchases and a 50 percent Anniversary Bonus on the cash back you’ve accrued every year you’re a cardholder.
The zero-percent introductory period isn’t as long as Chase Freedom’s, but in Peter’s case that won’t matter since he plans on paying in full right away.
The short answer to Peter’s question is to apply for a cash-back card that includes a $100 cash-back bonus, and consider the long-term perks of the card after he’s paid off that new flat-screen TV.
(Note: While we attempt to be completely objective when reporting on credit cards, this site may be compensated by issuers when a reader applies for a credit card through the links within credit card stories or on our credit card search page. )