Choosing The Right Credit Card For You

With the barrage of credit card adverts and offers it's very hard to know which card is the best. The truth of the matter is that there is no one credit card available that is the best card for everyone. Choosing the right credit card has more to do with your credit card spending and repayment habits than anything else.

Finding the best card for you starts with thinking about how you tend to use your credit card. For example, do you pay the card balance in full every month, do you carry a balance over and incur interest and so on. Look through the statements below and find the one that sounds like you.

"I don't pay my credit card bill in full most months"

If you typically carry a balance over month to month you should look for low interest rate credit cards. Some cards charge rates of 18% and upwards per annum while others charge less than 10% per annum. The interest rate makes a huge difference to both the monthly minimum repayment figure and the ease at which you can pay down debt. For example, if you had $2000 in credit card debt on a card with an interest rate of 19% and attempted to pay it off by paying the minimum due of $50 per month off the balance it would take 20 years to pay the card off incurring over $3,000 in interest.  Doing the same with a card charging 9% interest would save you over $2,200 in interest and many years.  A low interest rate is far more important than a rewards program or other perks if you are carrying debt.

"I only use my credit card occasionally and typically pay it off each month"

If you are a light credit card user and tend to pay it off in full each month then the most important factors to consider will be the cards annual fee and the number of interest free days on purchases. Many credit card issuers now have cards with no annual fees. They tend to offer less in the way of rewards schemes but as a light user you are unlikely to benefit from such schemes. Look for cards with a low or no annual fee offering instant rewards and discounts. These are partner offers that can be used at any time without accumulating points.

"I buy most things with my credit card and then to pay if off each month"

If you do most of your spending via your credit card and tend to pay it off each month then you may benefit from a credit card offering a rewards scheme. Often rewards credit cards have higher interest rates or annual fees than other types of credit cards. However, interest rates are not important so long you pay the bill each month and the rewards could well exceed the card fee. Frequent flyer credit cards are the most popular type of reward card. A spend of around $2000 per month can earn the equivalent of 4 short haul return flights per year with many airlines.  Extra points can be earned by paying for everyday items including groceries, bills and even your rent.

Other Factors to Consider When Choosing a Credit Card

Interest free days:
When looking for credit cards you will find most credit card issuers offer a number of interest free days on all purchases.  This is the period from when you make a purchase to when the credit card bill is due.  So long as you pay the credit card bill on time you will be charged no interest for purchases made in that billing period. The number of interest free days is normally described as "up to" a certain number of days.  For example, if a card had "up to 50 days interest free on purchases" then you would get 50 days from the first day of the billing period to when the card repayment was due with no interest.  If you purchased an item 30 days into that period you would only have 20 days interest free on that purchase.  Many credit card companies now offer to up to 55 days interest free on purchases. Cash advances normally incur interest straight away and often at a higher rate than purchases so check the rates before applying if you will require cash advances.

Late payment penalties:
When evaluating which credit card is right for you, it is important to consider the late payment penalties. If a late fee is charged, what is it? Is an increased interest rate also enforced as a penalty? Some companies more than double your interest charges if you pay late even by one day.

Customer service:
It is also helpful to consider a company's track record in looking after their clients. Why not phone the customer service lines of your short listed credit card companies? Who do you want to deal with? Are you kept on hold for an excessive length of time before someone takes your call or are you answered quickly? If you can't get good customer service from a company, you should probably forget them.

Conclusion:
If you intend to use your credit card to pay bills and will pay the complete balance each month, look for a credit card that offers the best value in terms of interest free days and rewards. However, if you are going to be in debt from month to month, look for the lowest interest rate, lowest annual fee and fairest calculation of penalties (because things can go wrong sometimes).

If you are juggling a number of credit cards of varying interest rates and have overall high monthly payments because of credit card debt, then consolidating your credit card debt on one low rate interest card could help simplify matters and make your debt more manageable. By consolidating your credit card debt on one low rate card you will dramatically reduce your minimum monthly credit card costs and improve your ability to pay down debt.

Debt consolidation, using a low rate credit card, can also provide more flexibility than a personal loan. If an emergency occurs then the credit is still there to use. The obvious risk to this is that you continue to make new purchases on the card and never get out of debt. Debt consolidation with a credit card requires discipline and commitment to get out of debt.

Best Credit Cards Summary – Right type of credit card for you
Carry balance over each month = Low interest credit card
High levels of existing debt to pay off = Low interest / balance transfer credit card
Pay balance off in full each month / low credit card usage = no annual fee credit card
Pay balance off in full each month / medium-high credit card usage = rewards credit card

Disclaimer:

No investment advice provided to you.
This web site is not designed for the purpose of providing personal financial or investment advice. Information provided does not take into account your particular investment objectives, financial situation or investment needs.

You should assess whether the information on this web site is appropriate to your particular investment objectives, financial situation and investment needs. You should do this before making an investment decision on the basis of the information on this web site. You can either make this assessment yourself or seek the assistance of any adviser.