Which Credit Card Should I Use to Buy an Engagement Ring?
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"Reader Questions" are answered three days a week — Mondays, Wednesdays and Fridays — by TPG Senior Writer Julian Mark Kheel.
An engagement ring is one of the most expensive retail purchases many people will make in their lifetimes. So TPG reader Joseph wants to know how he can maximize both credit card rewards and interest payments on the investment...
[pullquote source="TPG Reader Joseph"]I'm buying an engagement ring for about $26,000. Is there a card I could sign up for that would give me 0% interest but some rewards that would outweigh the 2% difference I have to pay for using a card instead of cash?[/pullquote]
Well, that's a tall order, Joseph, but maybe we can help you out. But before we do, we want to emphasize as we always do here at TPG to be sure you're not buying beyond your means. We certainly understand the importance of this once-in-a-lifetime purchase, but it's vital to be certain you don't get in over your head with debt. So just make sure you know exactly how you're going to pay off the $26,000 in a reasonable amount of time before you proceed.
With that said, let's take a look at the actual options here. The issue is that while there are credit cards that offer 0% interest rates on purchases for a period of time, and there are also credit cards that offer rewards worth more than 2%, it's not easy to find a single card that has both.
It's extremely important that you pay the entire amount off in that time, because after the intro period, any balance remaining on either card jumps to an obscene double-digit interest rate of at least 13% and potentially more than 23%!
As for rewards, the Amex EveryDay will earn you 1 Membership Rewards point per dollar spent, plus you'll get a welcome bonus of 10,000 points for making at least $1,000 in purchases in the first three months. TPG currently values Membership Rewards points at 2 cents apiece, so the 36,000 points you'll earn for your $26,000 purchase and from the bonus are worth $720, which is $200 more than the $520 fee for paying for the ring with a credit card.
With the Chase Freedom Unlimited, it's a little more complicated but also potentially more lucrative. The card offers 1.5% cash back on all purchases, which in and of itself doesn't offset the 2% fee you mentioned for buying with a credit card. However, remember that cash back on the Freedom Unlimited comes in the form of 1.5 Ultimate Rewards points per dollar spent. That means if you also have another Chase card with the ability to transfer points to travel partners — such as the Chase Sapphire Preferred Card or the Chase Ink Business Preferred Credit Card — you can get more than just 1 cent apiece for those points.
In fact, based on TPG's most recent point valuations, Ultimate Rewards are worth 2.2 cents each, so if you spend $26,000 on the ring and earn 39,000 points from the purchase, plus the 15,000-point bonus points for spending $500 in purchases in the first three months, you can end up getting $1,188 in value from those points.
There's one other hiccup: You'll need to have a credit limit of at least $26,000 in order to pull this off, and you'll likely be using up a large portion of your credit limit for an extended time, which can hurt your credit score. So if the ring vendor allows you to pay for a portion of the purchase with a card and the rest with cash, that might be a better option.
In any case, Joseph, good luck with the engagement and let's hope your significant other says yes, though at least if they say no you'll have at least $720 worth of points to fly somewhere and drown your sorrows. Thanks for the question, and if you're a TPG reader who'd like us to answer a question of your own, tweet us at @thepointsguy, message us on Facebook or email us at firstname.lastname@example.org.