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. Here’s some ideas about how to pick 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 minimum payments, it will take 173 months to pay the balance off and it will cost all of $ 1,833.24 for interest.

Compare that to a card with the same balance and an interest rate of 20%. So in this case, paying only the minimum every month will result in you paying $ 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.

Obviously, it’s worth the effort to shop around a bit 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 number of rewards programs available, it shouldn’t be hard to find one that suits you. For constant travelers, there are the always popular flyer miles or points towards airline tickets or hotel stays. Or perhaps you make a LOT of purchases – look for a card that offers cash back on every purchase made.

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 instance, some cards let you pick a certain number of purchase locations, i.e. certain gas stations or grocery stores, and get a bonus for making purchases. 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. You obviously want to avoid these like the plague. 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. An informed consumer precludes themselves from being surprised by anything later on.