3 Questions to Ask Yourself Before Buying On Credit

If you use the right type of card, you could save more money than you realize.


So you've got a credit card. It makes sense to figure out the best way to use it, right? Yes, you could go out and slap down the first credit card you find from your wallet—but is this really the best way to go about making a purchase? If you're a responsible credit card user, you may find that by using the right type of card, you could save yourself more money than you realize.

Before you pull out that treasured piece of plastic, ask yourself the following questions to figure out which credit card will work the best for your current purchase.

[See 12 Money Mistakes Almost Everybody Makes.]

1. Are you making a big purchase? If you're paying for a big-ticket item, choosing a cash-back credit card could be the best way to go. A cash-back credit card will give a percentage of your purchase value back to you—and doesn't everyone love free money? If you don't have one of these cards, check the current marketplace to see what cash-back percentages are being offered. After all, it makes sense to apply for the card that offers the most return.

If you don't have such a credit card handy, there are various other card products on the market that have other bonuses or advantages. For instance, some give you coupons or discounts for certain stores. The points add up when you use them to make purchases. So if you frequently shop at certain stores, you could earn a free shopping trip by utilizing this type of card.


2. How are you paying off your card balance? Do you intend to pay off your entire balance when the bill comes in, or do you plan to pay it off over the next few months? This is a very important question to ask yourself before you make your credit card purchase. If you are going to pay it off the moment the bill arrives, you can take advantage of cash-back cards or cards that have other bonuses attached to them.

But if you are intending to pay off a chunk of the total amount over several months, you may want to consider a 0% APR credit card instead—one that offers no interest on purchases for a short period of time. Some of these cards may only have the 0% APR as an introductory offer on purchases, while for other cases, the offer may apply to balance transfers. But a few months could be all you need. To make these cards worth owning, you should commit to paying off your card balance over a span of three months or so (or within the introductory term) to ensure that you don't incur any interest in the process.

[See How Credit Card Companies Make Their Money.]

If you are thinking about paying off your card over a much longer period of time, consider shopping for cards with lower interest rates. Typically, a rewards card will have a higher rate than other no-frills cards in the market. Know your spending habits to find out which type of card will work the best for you.

3. Would you like free bonuses with your purchase? Many cards offer interesting perks these days. You should survey the market to see how many of these reward credit cards are available. They fall into all kinds of categories, from cards offering airline miles to free gas. Depending on how you shop and what you tend to buy, you can get a card that will earn you cash and rewards just for doing your everyday shopping.

As you can see, there are some real advantages to buying things with credit cards. The more you come to grips with how you spend money on them—and more importantly, how you pay them off—the better equipped you will be to make the most of your credit card purchases.

Silicon Valley Blogger is a full time blogger and online entrepreneur who writes for The Digerati Life and The Smarter Wallet sites that cover general topics ranging from investing and saving to credit and debt management.