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4 questions to ask yourself before making a big purchase
If you're about to make a big purchase, ask yourself these four key questions that can potentially save you money.
Purchasing a new laptop or home appliance can make your life a lot easier, but the cost can take some of the joy out of it.
While it’s satisfying to use a new, fast laptop or high-tech electric stove, top-of-the line electronics and appliances can easily cost hundreds to thousands of dollars.
Fortunately, there are ways you can cut costs and save on big purchases, like electronics, appliances and furniture. Below, we outline four questions that you should ask yourself before purchasing costly items.
Questions to ask yourself before making a big purchase
1. Is the purchase a want or need?
Some big purchases are necessary, like a new hot water heater or stove. However, other purchases, like a laptop or couch, may be nice-to-haves and not necessarily urgent needs.
Consider the reason for your big purchase and whether it’s a want or a need. For instance, I’ve been wanting to get a new Mac for roughly a year, but have yet to make the purchase. The reason why I want a new Mac is because my older Mac operates slowly, is heavy and has a few technical issues (like broken speakers and a glitchy trackpad).
That said, my laptop still operates okay for the few times I use it a week. Since I don’t use it every day, purchasing a new laptop isn’t at the top of my list of needs. It’s more of a nice-to-have and something I’ll consider purchasing when it becomes more of a need. In the meantime, I can save my money for things that are necessary for my day-to-day life.
2. How much money can you afford to spend?
When it comes time to shop around for a big purchase, it’s important to review your budget. A budget tracks where your money goes each month and is an important resource for understanding how much money you can afford to spend.
Simply making purchases without checking your budget can result in overspending. Then any unpaid balances can lead to debt, which can be hard to pay off quickly.
Before you go to checkout, check-in with your budget to see how much money you can reasonably afford to spend on your purchase. If you have emergency savings for necessary appliances, like a hot water heater, it can be a good time to dip into them. But if it's more of a want, like a new couch, consider planning ahead by a few months to set aside extra money.
If you don’t have enough money to cover the cost, you can opt to save up and delay the purchase, or choose a financing option mentioned below.
3. How do you plan to pay?
If you’re making a big purchase, you have some options on how to pay for the cost. You can consider using cash, a credit card or a personal loan, but the best option depends on the cost.
While you can pay with cash, you may not have enough money on-hand to cover the cost of a large purchase.
A credit card is likely your best bet for financing big purchases since you can earn rewards and benefit from an interest-free period. One of the best 0% APR credit cards, the U.S. Bank Visa® Platinum Card, offers 0% intro APR for 18 billing cycles (after, 19.49% - 29.49% variable). Balances must be transferred within 60 days from account opening.
And if you want the best of both worlds — intro 0% APR and rewards — consider a card like the American Express Cash Magnet® Card with unlimited 1.5% cash back on all eligible purchases, plus an intro 0% for the first 15 months on purchases from the date of account opening (after, 18.49% to 29.49% variable APR). See rates and fees.
You can also consider store cards, which typically boast a big, one-time discount after approval and no-interest periods, but be wary of deferred interest. If you continue to carry a balance after a special financing period ends, you'll often incur a charge for all the interest you accrued since the date you made your purchase.
Another alternative is a personal loan that allows you to receive a one-time payment of cash that you repay over the course of a predetermined term with interest. Personal loans typically have longer repayment periods and lower interest rates than credit cards (excluding 0% APR offers). The average interest rate for a 24-month personal loan is currently 9.65% versus 16.28% for a credit card, according to the Fed.
LightStream offers a *7.49% - 24.49% APR with AutoPay and terms range from 24 to 144 months. This can help you pay off large purchases at a reasonable interest rate.
Finally, an option that seems to be at nearly every online checkout is a point-of-sale loan, aka POS loan. Companies, like Klarna and Affirm, offer POS loans, which allow you to pay for purchases over time with either a one-time installment loan or a payment plan. While these loans are typically interest-free, make sure you confirm by reading the terms and understand how POS loans impact your credit.
4. What money-saving options are there?
Since large purchases can be so costly, it’s important to check for any money-saving opportunities. You can consider searching Google for coupons or downloading a browser extension, like PayPal Honey or Capital One Shopping, that automatically applies eligible discount codes at checkout.
If your purchase isn’t urgent, you may want to hold off until there’s a big sale. Major holidays are often accompanied with doorbusters, such as huge Memorial Day sales with grills and outdoor furniture on sale. Retailers also occasionally offer friends and family sales that can boast big discounts.
And if you paid with a rewards credit card, you can offset your bill through statement credit reward redemptions. A $1,000 purchase on a card that earns 5% cash back can earn you $50, which is a decent amount of money.
For rates and fees of the American Express Cash Magnet® Card, click here.
Information about American Express Cash Magnet® Card and Capital One Shopping has been collected independently by CNBC and has not been reviewed or provided by the companies prior to publication.
*Your LightStream loan terms, including APR, may differ based on loan purpose, amount, term length, and your credit profile. Excellent credit is required to qualify for lowest rates. Rate is quoted with AutoPay discount. AutoPay discount is only available prior to loan funding. Rates without AutoPay are 0.50% points higher. Subject to credit approval. Conditions and limitations apply. Advertised rates and terms are subject to change without notice. Payment example: Monthly payments for a $10,000 loan at 7.99% APR with a term of 3 years would result in 36 monthly payments of $313.32.