A reader asked, “how do you choose the right credit card?” I thought the answer would benefit some of you.
The first step is to determine how you will use the card and how you will pay it off. Here are some questions to get you thinking:
- Will you be using the credit card for emergencies only?
- Do you want to establish credit for the first time (or reestablish)?
- Do you plan on using the credit card for many charges to build up rewards?
- Will you pay off the balance in full each and every month?
- Do you plan to use this as funding for a big project, business start up, or other big expense?
- Do you plan to use it in place of a loan?
You need to think about why you want the credit card. Once you have done that, you should read all the way through this article. Hopefully, my thoughts and suggestions will help you choose the right card for you.
Emergency Credit Card
If you are in the market for an emergency credit card, then you need to look for a card that has the lowest interest rate possible. My thought process is that you will be using this card for big emergencies (the little emergencies can be covered by other means). For example, you might use this when your fridge dies and you need a new fridge right away. The low interest rate is essential because you will probably need to make several payments to pay off your purchase. In this economy, you have to settle for a card with an annual fee.
Establishing or Reestablishing Credit
With the economy that we are in, many young people are having trouble establishing credit for the first time. They get declined more often than they are approved. If that’s you, you may have to consider getting a store credit card. If you do, choose a store where you shop frequently and apply there. Store credit cards come with high interest rates. Don’t charge more than you can pay off in full each month. If you make your payments on time and keep your charges low, you should be able to get another card after about one year.
Rewards Cards
Rewards credit cards are great if used properly. Rewards almost always have an annual fee and a high interest rate, but you benefit from the perks. You need to be vigilant about what you charge and pay the balance in full each and every month. Paying interest on this card negates the perks of the reward. If this is your choice, then choose a card with a reward that you will use – don’t get airline miles if you don’t travel.
You Pay Off Your Balance Each Month
If you are someone who pays off your card in full each and every month, you don’t care about the interest rate, because you won’t be paying interest to the creditor. You should be looking for the lowest fees associated with the credit card.
Big Projects or Credit Card in Place of a Loan
Read the emergency credit card section above. My thoughts are basically the same. You want low interest because you won’t be paying the card off in full each month.
Creditors are in the business of making money, but they aren’t making as much as they used to, thanks to the new credit card rules which went into effect earlier this year. Their goal is to make money, your goal is to pay as little as possible. Therein lies the dilemma. You need to read the fine print and understand the terms of any credit card before applying. You should also read the inserts and letters that you receive because your terms can change with notice. If you read something you don’t understand, call and ask questions. Don’t stick your head in the sand and hope all with be resolved. This is your financial life and you’re the only one looking out for you.
Jill Russo Foster is the author of Cash, Credit, and Your Finances: The Teen Years. She provides practical tips for every day finances. Learn more about protecting your credit and living within your means, with Jill’s popular free reports and bi-monthly ezine, available here ==> CashCreditandYourFinances.com
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