Choosing Your Next Credit Card

Choosing a Credit Card

Despite the current economic climate and the ongoing credit crunch, there are still plenty of credit cards out there to apply for. Let’s talk about the best way to choose your next credit card.

Interest Rates

Certain perks, such as airline miles or cash-back rewards, are nice, but the interest rate you’ll be charged is perhaps the most important feature of any credit card. Even seemingly small differences in interest rates can make a big impact on the amount you’ll pay in interest as long as you carry a balance.

Let’s look at an example

Say you have a credit card with a $2,000 balance and an interest rate of 14%. If you make only the minimum monthly payments, it will take you 173 months to pay off your balance and you’ll pay a total of $1,833.24 in interest.

Compare that to a card with the same balance and an interest rate of 20%. In this case, if you pay only the minimum each month, you’ll wind up paying a total of $2,723.59 in interest over the 186 months it will take you to eliminate your debt, a difference of $890.35 for just a few percentage points.

As you can see, it’s definitely worth it to spend some time shopping around to find the credit card offers with the lowest interest rates possible.

Bonuses and perks

While the bonuses and perks offered by different credit card companies shouldn’t be as big of a concern as the interest rate you’ll be charged, they’re still something that you’ll want to take into account. Given the huge variety of rewards programs today, it shouldn’t be hard to find one that suits your needs. If you’re a big-time traveler, a card that offers travel points towards airline tickets or hotel stays may be a good choice. Or, if you make frequent credit card purchases, look for a card that offers cash back on every item you buy.

Alternatively, if you can’t decide on a single rewards program, look for a card that offers a general rewards program or one that earns you bonuses at a certain number of locations you frequent. For example, some cards exist that allow you to select a limited number of purchase locations – like a certain line of grocery stores or gas stations – and earn extra bonuses on items bought there. Over the life of the account, these bonuses and perks can add up, so they’re certainly not something to scoff at.

Rates and fees

Besides the interest rate you’ll be charged on the balances you carry, credit cards may institute a number of other fees or charges that will cut into your spending power. Obviously, it’s in your best interest to avoid as many of these as possible. A few of the things you should check the fine print for include annual fees to keep the card open, rate hikes that occur if you’re late with a payment by as little as one day and the credit card company’s policy on fraudulent transactions. Being an informed consumer from the start will help to prevent any surprises from catching you off-guard later on.

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