What Kind of Credit Card Is Right for You?
Credit cards are surprisingly powerful. Not only do they allow you to purchase all kinds of goods and services, but they can also help you manage debt, build your credit, and pay for your next vacation. But knowing what kind of credit card is right for you can be challenging - especially when there are so many credit card options on the market.
While a card that lets you rack up travel points when you shop may sound tempting, look beyond the advertised bonuses to decide which one best suits your needs. If you're only beginning to build credit, you might want to start with a more basic card before diving into the world of travel points and their accompanying card fees. Let's take a closer look at what kind of credit card user you are and how to best maximize your cards' usefulness.
Are You Carrying a Balance?
If you're trying to build credit or use new cards to manage existing debt, a zero percent interest credit card may be the right choice for you:
- Zero Percent Interest Credit Card: If you're looking to lower your monthly payments, many lenders will offer cards with a zero percent interest introductory promotion. For the first 12 or 15 months, you may not have to pay any interest on purchases or balance transfers. The latter is what you want to pay attention to if you're looking for a way to better manage your debt. By transferring an existing credit card balance to your new zero interest account, you get a break from the burden of monthly interest. But remember that once the promotional period expires, interest will kick in on that account, too. Make sure to read the fine print on what that interest rate will be, and use that buffer period to either pay off the debt or come up with a long-term strategy for coping with it.
Are You Paying Your Credit Card in Full?
If you pay your balance in full most months, you may benefit from a rewards-earning account. Take a look at some of your spending habits and then consider finding a card that will reward where you spend the most. Here are a couple of options depending on whether you're spending more on travel, groceries, or general spending.
- Travel Reward Cards: Travel reward cards can provide great benefits for people who jet around the country several times a year. Oftentimes, you'll earn double miles when you purchase flights and services through the airline affiliated with the card, allowing you to earn rewards that much faster. Before applying for a card, however, you'll want to decide which types of rewards are most valuable to you. Be sure to read through all of the associated benefits as well. Some cards come with additional perks, such as dining credits, and discounts at certain hotels and tourism properties - those details may sway your decisions. You'll also want to compare annual fees across account types.
- Grocery and Gas Station Credit Cards: If you're a frequent grocery buyer or have a long driving commute, you may be able to earn cash back rewards while loading up on provisions and gas. In many cases, traditional lenders provide far more favorable rates and rewards than you would find through the stores themselves. Some cards offer as much as 6 percent cash back on grocery purchases and 3 percent on gas. As with the travel reward cards, some accounts include extra perks such as cash bonuses for spending a certain amount within a particular period. You may also find that rewards cards include zero interest promotional periods - allowing you to combine debt management with travel and cash back benefits. Other cards allow you to earn 5 percent cash back at restaurants and wholesale clubs.
Keep in mind that if your spending is more on the general side, you may want to look into a cash back card. These cards typically assign points for every dollar spent or paid off on your card that you can then use to redeem for credit. You can then use that credit to help pay off your cards or finance future purchases.
How to Use Your Credit Cards Wisely
Credit cards can be incredibly helpful for achieving any number of financial goals. But if you're not careful, they can have the opposite effect. As a rule, it's best not to charge more than you could afford in cash. Whether you're using a secured credit card or airline miles card, ask yourself whether you'll be able to pay your bill in full when it arrives. If the answer is "no," reconsider the purchase.
Resist the urge to open several new accounts at once, no matter how enticing the rewards are. Opening too many accounts at once can negatively impact your credit score. You can achieve good credit hygiene by understanding your goals and habits. Knowing which credit card is right for you becomes much easier once you know yourself.