8 features to look for when searching for the right card for your needs.
Securing the right credit card or combination of credit cards can give you a definite edge when it comes to your ability to manage debt effectively. You want to avoid signing up for every credit card offer you receive and in fact, you should really only sign up for credit cards when you have a specific need for one. As a result, even if you’re an advanced credit user who takes strategic advantage of credit card reward programs, you only need a few cards to manage your finances effectively.
Credit cards vary greatly from one issuer to the next, so Smart Spenders know to compare them carefully before signing up. Here are the eight features that Smart Spenders know to check when comparing cards…
Rates can vary greatly and the difference of what items end up costing can be astounding. So Smart Spenders know how to shop for the lowest rate possible because it has a big financial impact.
Smart Spenders also know how to opt for credit cards that have no annual fees. Some credit cards can have annual fees up to $75!
There are credit cards that have special interest rates for things like balance transfers, and they may have additional transaction fees, too. That’s why Smart Spenders take note of transaction fees to see exactly how much it will cost to use the credit card for things like balance transfers.
It’s rare these days, but some credit cards and loans have a grace period – that’s time you have after the due date to pay without facing penalties. Of course Smart Spenders always pay on time and usually pay off balances in-full before interest charges are applied. They understand that paying off balances in-full every month can eliminate interest charges entirely!
Smart Spenders are aware of the financial and credit impact of credit limits. Not only does a high limit give a Smart Spender more purchasing power, but it also has an impact on the cardholder’s credit score. Current credit used versus total available credit is the second biggest factor in credit scoring.
Smart Spenders understand that cards are easier to use if they’re accepted everywhere. That means major credit cards are better bet in most cases than store credit cards. And even major cards may not be accepted everywhere in the world.
Smart Spenders check what services are included with certain cards. From fraud protection to credit score tracking, added services can offer benefits that go beyond basic usage.
Experienced Smart Spenders use reward credit cards because they can provide good reason to use one card over another. Smart Spenders check rewards programs and understand limitations and restrictions. They choose the card that offers the most rewards with the least complications.
Be a Smart Spender – shop around for credit cards and use comparison websites to your advantage. Once you find THE ONE, don’t rush into signing. Read and understand your contract and make sure to keep a copy on file.
For more information on how to be a smart spender, visit ConsolidatedCredit.org.
What’s the most important factor?
Out of the eight factors presented, interest rate and fees are of the utmost importance when it comes to choosing the right card. You want the lowest interest rate possible and the least amount of fees to use the card. This helps minimize the cost of using credit so you’re not shelling out a lot of money for the convenience of using your cards.
Of course, rates and fees are likely to be higher with credit cards that offer additional features, such as cash-back or travel reward programs. However, when comparing credit cards that offer those features, you want to focus on getting the lowest rates and fees for that particular type of credit card.
Just keep in mind that for rewards credit cards you also have to balance rates and fees against reward limitations. For example, a travel rewards credit card with a low rate may have significant blackout dates that make it tough to take advantage of the rewards you earn. If a rewards credit card is so restricted that you can’t take advantage of the rewards you earn then it’s not a good card for you needs no matter how low the rates and fees are.
Comparing credit cards for transactions
Once you have the right credit cards for your needs, you have to make sure you use them for the right purposes. This will help you manage your debt effectively while minimizing interest charges and fees.
You might think if you have a rewards credit card that offers a percentage cash-back on every purchase you make that this would be the credit card you’d want to use all the time. However, that may not be the case.
Consider if you have a purchase that you know will take a few billing cycles to pay off, such as purchasing a new TV or clothes for your children for back to school. In this case since interest charges will be applied over a period of several billing cycles while you work to pay off the debt, using a rewards credit card wouldn’t be to you advantage. That’s because the cash back you earn will be offset by interest charges accrued during the payoff.
So if you have a $1,000 purchase that will take 4 billing cycles to pay off, 1.5% cash back means you earn $15 cash back. However over those four billing cycles on a rewards credit card with a standard APR of 20%, interest charges would add up to around $38.02. So the purchase actually ends up costing $23.02 rather than earning $15.
If you put the same purchase on a low-interest credit card at 12% APR and pay off the debt within the same 4 billing cycles, the total interest charges are only $22.48. It still costs you, but even with the cash back on the other card, it doesn’t cost as much on the low-APR credit card. This is why purchases that will take several billing cycles to pay off are better placed on low-APR credit cards rather than a rewards credit card that typically has higher APR.
You can use a credit card debt repayment calculator when comparing credit cards for a specific purpose to find the best card to use in each situation. This way you can be strategic when it comes to managing your debt and choosing which of your cards to use. It’s a little more work up front that can save you significant hassle once a debt has been incurred.