Choosing the Right Credit Cards

Key factors in a good credit card

Often the problem people run into with a credit card is that didn’t pay enough attention to the details before they signed up. You see a commercial for a new card and it seems like it offers these great rewards, but you end up with high fees and terms you didn’t expect. As a result, you have a card that doesn’t work exactly the way you wanted it to, so you have to adjust your strategy around the account instead of finding a card that fits the strategy you want.

To make things easy, these are the key factors you need to consider when you apply for a card:

• Interest rate – make sure to look at the introductory rate and (more importantly) what happens once the introductory rate expires. You also need to look at the interest rates for balance transfers, cash advances, and the penalty APR that would be applied if you miss a payment.
• Fees – try to avoid cards with high annual fees and pay attention to any additional fees that may be relevant to what you need. For instance, a high balance transfer fee may not mean that much if you’re using the card for purchases, but it will really matter if you’re using the same card to consolidate your own debt.
• Rewards – these are essential for strategic credit card use. With the right mix of rewards credit cards, you can pretty much make sure that all of your credit purchases earn you something in return. Then as long as you manage the debt effectively, you basically get an advantage every time you use credit instead of cash.
• Credit limit – this is definitely a factor that may impact your decision, if the credit issuer actually lets you know the limit in advance. Bear in mind that the limit is usually tied to your credit score, so you may not be able to determine the credit limit until you actually and get approved for the card.
• 30-day vs. revolving – this factor focuses on how the debt gets paid back each pay cycle. A revolving credit card means you only pay a percentage of what you owe, but with a 30-day credit line you have to pay off the full balance at the end of the pay cycle. This usually doesn’t work if you want to make large purchases.
• Customer service quality – you want to make sure that if you have a problem, you’ll get the service and support you need to address the issue. If you’ve had a bad experience with a provider or you see online that the company has a large volume of complaints, you may be better off with a different card.

Having the right mix of credit cards

Once you start using credit strategically, it almost naturally follows that you’re going to have more than one account. With that in mind, the central idea is to get different cards that serve different purposes so you can use the best card in your arsenal for each charge you need to make.

With that in mind, it may be a good idea to have at least one card that does each of the following:

• Low-interest, high limit. This is the card you use when you need to make a big purchase or a series of purchases that may not be paid off within the first month. You want purchases that will be paid back over time to have the lowest interest rate possible, so they don’t cost even more with the interest added of each passing month.
• High-percentage cash-back rewards on certain purchases. This card allows you to strategically make certain types of purchases that can earn up to 5 percent cash back in some cases. The more cash back you can earn, the better.
• Low-percentage cash-back rewards on all purchases. Other cash-back cards offer less cash back, but it applies to any purchase you make without restrictions. This allows you to get rewarded, even if you’re purchasing something that doesn’t fall into the right category for your other rewards cards.
• Gas cards. Having one or more credit cards that can be used at gas stations can be a huge advantage to cutting and/or recouping your monthly fuel costs. In many cases, you can even get rewarded for picking up incidentals, too.
• Travel rewards. Findat least one credit card that allows you to earn travel miles so you can use your credit purchases to cut the cost of airline travel out of your next family vacation.
• Balance transfer card. Using balance transfers can be a smart way to manage debt because you ensure the outstanding balance is growing as slowly as possible with interest added. So you make purchases on your rewards cards that may have APR over 20 percent, but then transfer the balances to a card with a much lower rate. Just watch out for the fees.

What about store cards?

Store credit cards (cards you get at department stores and other specialty stores) tend to be some of the most dangerous credit cards to use because they usually have higher interest rates may even have harder terms to follow. As a result, managing store card debt can be tricky and problematic even for savvy consumers. With that in mind, for the most part you’re generally better off turning store cards down when they’re offered to you.

That being said, if you shop at one department store almost exclusively and opening a store account will give you access to special discounts and other rewards you wouldn’t otherwise get without it, then it may be in your best interest to open the account. Just be careful with the debt!

If you have a store account, pay it off in-full every time you make charges on the account, without fail. You also need to be careful that you don’t overspend because of all of the sale notices and incentives you’ll start to receive as a member. Some department stores will send special sale offers to store cardholders almost daily. Remember, just because there’s sale it doesn’t mean you have to buy. Shop these offers strategically – only taking what you really need and what you can pay off in-full every month.

No matter which cards you have, you have to manage the debt

The number one rule that you must follow for any effective credit card strategy – no matter which cards you have – is that you have to pay off the debt quickly. Ideally, you want to eliminate your debt in-full every month so you can start the next billing cycle with a clean slate. Barring that, if you decide to carry a balance, you should have a manageable amount of debt that you can feasibly pay off within a few months. Any more than that is too much.