How to Finance a Major Purchase Responsibly

You want, or need, to make a large purchase. While the price tag may look painful, paying for it doesn’t necessarily have to be a big pain in the wallet. Following these tips may help spare you the financial headaches that often accompany paying for high priced purchases.

Finance Less

Paying cash has its advantages: Less interest on purchases, less APR credit card debt accumulation and less loss of sleep. Unexpected expenses, including emergencies, happen. Be prepared by adding an Emergency Fund contribution to your monthly budget to cover significant one-time surprise expenses.

Rate Shop for Credit Cards

When paying cash isn’t an option, step one is planning the most sensible and affordable way to minimize the debt of purchases. Before financing major items on credit cards, compare APRs for purchases. Many credit card issuers offer a wide range of rates rather than one flat rate. The key to scoring the lower end of the range, which translates to lower APR and lower interest on purchases, is excellent creditworthiness. Every point counts, and costs, with credit card debt — another reason to make monthly payments on time and maintain a high credit score.

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Rate Shop for Loans

When applying for large loans, try to ensure that your credit score doesn’t take a hit. With rate shopping, hard inquiries allow potential creditors to pull your credit, which affects credit scores. Soft inquiries, which involve pulling your own credit, don’t affect credit scores. The goal of rate shopping is to get the cheapest rate while keeping hard inquiries to a minimum.

Similar loan applications for the same amount are considered to be one inquiry. Stick with one amount and one type of loan. Here is more insightful advice from NerdWallet for a better understanding of how to rate shop with less credit suffering.

Cut Costs with Credit Card Rewards

With APR, interest on purchases can add up fast. Credit cards that offer cash back or point rewards basically build in savings discounts on future purchases. If you use a credit card for a big purchase, redeem the points wisely to save on other necessities. Check the shopping portal associated with your points program to shop for the best deals. Just remember to pay off monthly balances on time. Adding more debt defeats the purpose of reaping the reward savings you’ve earned.

Now that you’ve learned more about financing major purchases responsibly, remember to fully think through whether the big purchase you’re considering is a good idea in the first place. Before you buy big, answer these 4 questions from WiseBread.

Resources:

1) Equifax: How to Budget for Big One-Time Expenses

http://blog.equifax.com/credit/how-to-budget-for-big-one-time-expenses/

2) CreditCards.com: Credit Card rate offer ‘ranges’ make comparison shopping tough

http://www.creditcards.com/credit-card-news/wide-apr-ranges-make-hard-to-know-how-much-you-owe-1273.php

3) NerdWallet Rate Shopping? Your Credit Won’t Suffer That Much

http://www.nerdwallet.com/blog/tips/rate-shopping-credit-score-loan-mortgage-vehicle-studen/

4) Equifax: How to Save Money on Almost Anything Using Credit Card Rewards

http://blog.equifax.com/credit/how-to-save-money-on-almost-anything-using-credit-card-rewards/

5) WiseBread | 4 Questions You Need to Ask Yourself Before Every Major Purchase

http://www.wisebread.com/4-questions-you-need-to-ask-yourself-before-every-major-purchase

Legal Disclaimer: This site is for educational purposes and is not a substitute for professional advice. The material on this site is not intended to provide legal, investment, or financial advice and does not indicate the availability of any Discover product or service. It does not guarantee that Discover offers or endorses a product or service. For specific advice about your unique circumstances, you may wish to consult a qualified professional.

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