Credit Cards Vary in Perks and Purpose

Ground Rules

Before we get started, let’s establish a couple of commonsense ground rules to live by when selecting a card.

• No annual fee. It’s almost always a good idea to avoid throwing away money on a fee. Zero-annual-fee cards are optimal because you are not being charged to access your credit card. Be sure to investigate the annual fee before signing up for a new card. (There are exceptions to this rule. Just be smart!)
• Go beyond minimum monthly payments. Making the minimum payment every month may save you from penalties but isn’t doing much for paying down your balance. Go above and beyond the monthly minimum to chip away at your overall debt.

Reward and Cash Back Cards

If you budget, track purchases, and spend predictably on monthly expenses, credit cards with a built-in reward system could make sense. Credit cards that reward you for spending are increasingly common. Rewards or points come in all shapes and sizes and can be used in a variety of ways, ranging from hotel and airline discounts to home goods and other products.

The key here is to avoid charging extra or buying a little more than budgeted to earn a particular reward. That point-hoarding trap could lead you down an unforgiving path of accumulated debt.

Reward cards are best leveraged by using the card for expected monthly purchases such as gas, groceries, and other expenses, and paying those purchases off in full on a monthly basis. Maintaining a zero balance month after month leaves you free of credit card debt and with a pocket full of reward points to use as you see fit.

Low-Interest Balance Transfer

We’ve all given in to the temptation of buying now and paying later and made a questionable credit card decision. Often, this can happen with first-time credit card users who are at an inherent risk of overspending and have a higher interest rate due to underdeveloped credit history. There’s also the cash advance scenario. Cash advances on credit cards come at a steep price in the form of extremely high interest rates.

Whatever the case, you now have a balance on a high-interest card that feels like it’s going nowhere despite your monthly payments. The answer could be to transfer your balance to a different credit card with a lower interest rate. This allows you to pay more towards the principal rather than interest. Many cards offer a low introductory rate for a certain period of time, giving you an opportunity to make payments above the monthly minimum and knock out that debt.

Secured

If you have poor credit or no credit, a secured credit card could be an option for you to begin healing your credit score. Secured credit cards are available to those who are not approved for traditional credit cards. They require a deposit and often come with an annual fee. If you’re determined to improve your credit score and to be diligent in your spending habits, using a secured credit card and paying off the balance could help. Be sure you understand the interest rate, fees, and penalties associated with the card before signing up.

Credit cards can be your best friend or worst enemy when it relates to financial health. They require discipline and a bit of knowledge to determine what options are best. Consulting with a local financial institution can help you make an informed decision. Not only will speaking with someone face to face offer you the opportunity to ask questions, local banks and credit unions typically offer credit cards with competitive interest rates and fewer fees than national financial institutions.