How to Choose the Right Credit Card

How to Choose the Right Credit CardEveryone has different views on credit cards. Some bloggers and finance gurus see them a money trap. Others view credit cards as a tool for making some extra money from rewards on purchases that they’ll already make. Still others use credit cards for the conveneince that they afford when making travel arrangements or shopping.

If you’re looking for the best credit card for your circumstances, you’ll need to consider each offer carefully to make sure you’re getting the best possible deal. There are big differences amongst credit card offers, so you need to make sure that the card you choose is a good fit.

Introductory interest rate and balance transfer fees

If you’ll be paying your credit card balance off each month (and you really should), then this isn’t really a huge concern. If, on the other hand, you’re looking to transfer existing debt to a low interest credit card, this becomes a much bigger issue.

Introductory interest rates are great because they’re usually way below average interest rates, with some being as low as 0% for balance transfers. If you have existing debt at a much higher interest rate, and assuming that you’re committed to paying it off as soon as possible, this can be a great option.

Be aware, though, that credit cards can charge a balance transfer fee regardless of the interest rate offered. These fees are typically around 3%, and many of them are “uncapped, ” meaning that the fee will apply to the full amount transferred. Another gotcha is the length of the introductory period. While 12-15 months used to be standard, many cards have shortened their introductory periods to 6-9 months.

Cash back or rewards

Some credit cards offer cash back on purchases while others offer specific rewards, often based on points. With cash back, the card issuer typically offer 1-5% cash back on your purchases. Most such cards offer cash back on all purchases, though the highest rates might only apply to certain purchase categories.

For example, Costco’s credit card through American Express offers 3% cash back on gasoline and restaurant purchases, 2% on travel expenses, and 1% on all other purchases.

There are, of course, other types of rewards, including:

  • Airline miles
  • Hotel points
  • Music downloads
  • Rebates on future purchases
  • Points for other free items

There are even a few credit cards that allow you to choose what type of reward you want. Look carefully at your spending habits when determining which reward card would be most beneficial. Be careful to find a card that rewards you for purchases that you already make.

Having a reward card doesn’t always pay off for some people though. For example, if you’re carrying a balance, the rewards will be more than offset by the interest that you’re paying. In that case, you should focus on finding a card with the lowest possible rate. Also be sure to use your rewards before they expire.

Annual fees

I’m not crazy about credit cards charging an annual fee to use their cards. Credit card issuers are obviously interested in making a profit, so it’s not surprising that they’ll go to great lengths to improve their bottom line. Many issuers charge annual (and other) fees on at least some of their cards, in part to offset losses from the new credit card reform legislation.

Unless the rewards program is so good that it offsets the annual fee, you should avoid cards with annual fees. There are plenty of credit card issuers that would love your business, so it can pay to shop around for one that has what you want without an annual fee.

Closing thoughts

As you can see, there are a lot of factors to consider when choosing a credit card. Carefully read the terms and conditions associated with any card of interest before signing up for it. And once you have it, make sure that you pay off the balance every month to avoid being charged interest. If you’re using your new card to pay down your high interest debt, also make that there aren’t any hidden fees attached.

Since many of you have credit cards, I’d love to hear your thoughts on them. If you use credit cards, which one is your favorite? Which is your least favorite? How did you find your card?

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4 Responses to “How to Choose the Right Credit Card”

  1. Anonymous

    my bottom line is no fees at all no matter what. fees weather it be at a bank or brokerage just absolutely burn me up inside.

    as for the rates, etc. i personally don’t really care because i pay the card off in full every time even if i have to move money around to do so.

  2. Anonymous

    I work for a non-profit and we see a lot of folks head over heels in debt. These types of advice can easily trap folks in their already bad spending habits.

    BTW: I only use 2 cards, VISA and Amex. Both have awards.

  3. Nickel

    Andrew: Interesting. I’ve never seen a place that only takes Amex. Usually it’s the other way around… Visa/MC are accepted but not Amex (or Discover).

  4. Anonymous

    I only aim to keep two credit cards, visa/mc and Amex because some restaurants only take Amex, and dang it, those restaurants are actually worth it to hold an another credit card. (I don’t like carrying cash)

    Both cards have cash back rewards because cash is better than anything. (you can use cash back to pay part of your CC bill)

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