Determining what type of credit card is best largely depends on an individual’s financial situation and requires a little reflection on how that person has used credit cards in the past as well as what future needs will be. Ultimately, key qualities of credit card offers that need to be given careful consideration are 0% introductory rates, rewards programs and annual fees.
Credit cards with 0% rates: Consumers who regularly carry credit card debt or anticipate the need to make purchases that cannot be immediately repaid should focus on 0% credit cards. Those with pre-existing high interest debt will likely find that 0% balance transfer offers can help reduce interest expenses and facilitate the process of getting out debt.
The primary benefit balance transfer cards offer is the ability to repay debt without interest expenses piling up. These cards offer 0% rates from 12 to as many as 21 months. Most cards do charge a 3% balance transfer fee; however, it is occasionally possible to get a no fee balance transfer card.
Consumers with little to no debt who foresee the need to take on new debt in the near future should focus on credit cards that offer 0% rates on purchases. With a 0% APR credit card, consumers will have time to pay down new charges before standard interest rates kick in.
Rewards Credit Cards: Consumers who pay their bills in full on a monthly basis should absolutely use rewards credit cards. However, determining the right type of rewards card to apply for requires careful thought.
Those who use credit cards occasionally or travel infrequently will likely find that cash back credit cards are the easiest to use. These cards also tend to carry no annual fees and offer a minimum of 1%, or .01, in return for every dollar spent. Many cards, such as Chase Freedom, offer 1% on everything, then 5% cash back in various categories. Used correctly, cards like this can be quite lucrative.
Choosing other types of rewards cards can get complicated. Airline cards, for example, tend to offer large bonuses, but also carry hefty annual fees. Consumers who don’t spend heavily or fly the same airline regularly may end up spending more in annual fees than they earn in rewards. Because of this, airline credit cards are best left to those who fly the same airline at least once a year and have basic familiarity with frequent flyer programs.
Annual Fees: While consumers with poor and average credit often have no choice but to pay an annual fee, most consumers with good credit will find plenty of no fee options. The annual fee issue really only comes into play when airline and high end rewards cards are being considered.
When evaluating rewards cards with annual fees, the key thing to consider is annual spending. A credit card with a $50 annual fee may require $5,000 of spending in order to earn enough rewards to simply offset the cost of membership. Those who spend lightly thus run the risk of losing out on much of the value of the rewards they earn.
More expensive rewards cards have annual fees that can start at $50 and run to $400 or more. Oftentimes, these cards carry additional, non reward perks like free checked baggage or airline lounge access. While benefits like these add value, it is important to ascertain whether these benefits offset the upfront cost.
Choosing a credit card is not as simple as it may seem. Nevertheless, careful consideration of personal credit card habits can go a long way in helping consumers isolate credit cards that offer the best value.
