How To Choose The Best Credit Card For You – Important
Discover the best credit card for you
When making the decision to get a credit card, there are a few things to consider when choosing the one best suited to you.
- Should you get a credit card?
- Which credit card is best for you?
- Credit card fees and charges
- Store cards
- How to do credit card comparisons
Should you get a credit card?
Though credit cards may be convenient, they do come at a cost. Some research indicates that people are much more likely to overspend than if they were to pay with cash.
It’s important to consider why you are looking into getting a credit card, and how you plan to use it, before applying for one.
Refrain from getting a credit card if your intent is to use it to pay off other debts. Higher interest rates, charges, and fees may cost you more in the end. Instead, consider a low interest loan or speak with a professional who can guide you with your finances and help you get on track.
If you’re concerned you’ll spend too much, a debit card may be your best option.
Which credit card is best for you?
You choose the kind of credit card you want based on how you plan to pay off your debt. They have different features for every kind of spender.
Low interest rate/low fee credit cards
High interest rates and fees accumulate quickly. When you’re browsing your options, consider one with low interest rates and fees.
Interest free periods
If you’re looking to pay off your credit card in full every month, consider a card that has interest-free days. This would mean that following each purchase, you’d have a specific amount of days where you could pay your balance off without any interest tacked onto the balance.
These kinds of cards likely have higher interest rates and annual fees, but if you always pay your debt within the interest-free timeframe, you’ll prevent yourself from ever having to pay interest. This may make the annual fee a reasonable cost.
No interest free period credit cards
If you’re aware that you won’t pay your debt in full as soon as you make your purchase, consider a credit card that doesn’t feature interest-free days. This translates to lower annual fees and lower interest rates.
Honeymoon credit card interest rates
Sometimes, you’ll find credit cards with introductory rates that are incredibly low. These are called “honeymoon rates.” You can check to see how high the interest rate will rise after the honeymoon period, along with any fees and charges. Cards with higher fees may negate the savings from your purchases during the honeymoon period.
How credit card balance transfers work
A balance transfer is a transfer of an outstanding balance from one credit card to another. The new card typically has a lower interest rate for a designated amount of time.
You can reap the benefits of a balance transfer if you pay off the balance transfer amount within the low interest rate period. Keep in mind, though, when the period ends, you need to be aware of what the interest rates will increase to.
If you use your new card to make a purchase outside of the balance transfer, it will likely incur the standard interest rate of the card, completely independent of the special rate for the transfer. Compare how different credit card features apply when you transfer a balance.
After transferring your balance, make sure to close your old card. If you don’t, you might end up with fees, or a temptation to use both cards, only adding to your debt.
When making payments on your new card, the payments will typically apply to the balance that carries the highest interest rate- like any new purchases you make with the card.
If you haven’t paid the transferred balance when the low interest period ends, the amount that remains will then be charged at the standard interest rate- usually much higher.
Cash back, discounts, and reward schemes
A few more features to explore as you choose your credit card:
- Credit cards with cash back: These credit cards usually give you back a little credit on your account with each purchase you make. In the even the card has a much higher interest rate, this type of card is not really beneficial. If you aren’t likely to pay off the balance each month, this offer may not be best suited for you.
- Discounts on goods and services: Some creditors offer discounts on goods and services that are purchased through organizations with which they’ve partnered. It can be great if you’re already purchasing these goods and services, but always compare the touted savings against the fees and interest rates to be certain it’s a good deal.
- Credit card reward schemes: Some cards have a points system, which provides you points for every dollar you spend with the card.
- Credit card travel insurance: Some credit cards come with travel insurance. If you find this appealing, ask the creditor if they provide it for your card.
Credit card fees and charges
When picking your credit card, always evaluate the fees and charges. They can add up quickly, and include:
- Annual account management fees
- Reward program fees
- Late payment fees
- Fees for spending more than your credit limit
- Fees for international transactions
- Fees associated with getting cash advances (in addition to interest on the cash advances)
Sometimes credit card purchases also include surcharges that retailers will pass to you. They must inform you of these surcharges before you pay.
The retailer is required to clearly note the surcharge in addition to the price, and provide you the information you need if you ask for a way to avoid it.
Some large stores and retailers offer their own credit cards, which have the same function, but only for purchases in their store. They oftentimes have higher interest rates and make shopping more expensive.
Prior to signing up for a store card, compare the interest rates with other kinds of credit. The benefits and discount rates on store purchases may not exceed the cost of having a higher interest rate.
Be weary of getting a store card that’s promoted as “interest free.” You may still end up paying more interest than a regular credit card.
How to do credit card comparisons
There are some tools you can utilize to compare the interest rates, fees, charges, and credit card features when you’re trying to find the right card for you.
- Minimum payments
- Standard interest rates for purchases and cash advances
- Periodic low interest rates for balance transfers and their time frames
- Promotional low interest rates
- Length of an interest-free period
- Annual and late payment fees
You may find comparison websites helpful when you want to compare the topics above, but they do have their limitations. Check out our article on using comparison websites for more helpful information.
It’s worthwhile to shop around for credit cards to find the one that best suits you. It may be easy to get a card with an institution you may already have an account with, but you might find better deals elsewhere.