Credit cards, credit cards, credit cards. This financial product has become a staple in every household.
These days everyone has a credit card. And while some view them as a necessary evil, others see it as a life-saving tool to help in sticky situations.
Credit cards can be both good and bad. It just depends on how you use them.
If you use them to wrack up debt, that can ruin your credit and cost you hundreds if not thousands of dollars in interest payments each month.
On the other hand, if you use your credit card as a tool to build your credit and improve your credit score, and you pay off your balances on time each month, credit cards can be very beneficial.
How to Choose the Best Credit Card for You
Now there are a lot of videos and articles about “the best credit cards.”
But what you might not know is a lot of this content contains affiliate links, which means they are paid to promote certain cards.
Which is fine,
But what we’re going to get into is how to choose the best credit card for you based on your personal and financial goals.
This will empower you to make the right decisions for yourself.
1. Annual Percentage Rate
What is the annual percentage yield?
The annual percentage rate, otherwise known as the APR, is the interest rate you have to pay if you don’t pay off your balance on time each month.
Knowing the APR is an excellent way to compare which credit card is best for you.
The higher the APR, the more interest you will have to pay on your balances.
Some companies offer 0% APR for a limited time to get you to sign up for the card.
This catches a lot of people off guard when they see the high-interest they have to pay after the introductory offer is over.
Tip: The average APR can range from 12% to as high as 24%. According to consumer finance.gov, credit card companies must disclose the APR.
Generally, you want to have a credit card with a lower APR, so you pay as little as possible on your balance.
Or avoid the APR all together by making sure to pay off your monthly balance on time each month.
If you want to learn to ensure you pay your credit card balance on time, check out my video
Related: Save more live better: Four fast ways to start saving more money today
How to pay off your monthly credit card balance on time
2. Fees
I don’t know about you, but I hate paying unnecessary fees, especially when they sneak up on you.
Some credit card companies charge an annual fee to use their credit card. This can be as high as $110, according to the 2019 Credit Card Fee Study, by U.S. News.
I try to avoid credit cards that carry an annual fee, and I always ask the credit company rep upfront what their fees are.
The truth is there are a lot of options when it comes to choosing the right credit card for you, and many companies don’t have annuals fees,
So to me, there isn’t any reason to be paying unnecessary fees.
Other fees credit card companies charge, include:
- Cash advance fees
- Late payment fees
- Balance transfer fees
And many more.
Being aware of these fees upfront can help you to determine which credit card is the most cost-effective and worth your time.
Related: Four Steps to Start Planning for Retirement
3. Rewards
Many credit card companies offer rewards as an extra incentive for using their cards. This can include cashback rewards, discounts, or points that can go towards travel and other expenses.
Some people earn hundreds if not thousands of dollars per year in rewards.
So if you plan on paying off your balances on time each month, you probably should take advantage of a card that offers rewards.
I have had a rewards card for about two years now. When I log into my account, I can see how much money I have earned in cashback.
Before getting a rewards card, make sure to ask about or review the restrictions of your reward cards.
To wrap things up, when getting a credit card, there are many important things to consider, including:
- Credit Terms
- Credit Limit
- Eligibility Requirements
But for me, I use the APR, credit card fees, and rewards as a benchmark for choosing the right credit card.
As a foundation for comparing cards, I use this rule of thumb. The lower the APR, the lower the fees, and the more rewards, the better depending on your goals.
What are the tips and tricks you use to choose the best credit card for you? Let me know in the comments below.
