With so many offers of cash back, travel points and other perks, choosing the best credit card offer can be difficult. However, failing to do so could cost you thousands of wasted dollars in interest and fees.
Like so many other things in life, shopping for credit cards the smart way is a matter of balancing the costs against the benefits to make the best choice for your situation.
Here’s what you need to consider.
- How You Will Use the Card
Every financial guru will tell you the smartest way to use any credit card is to the pay the balance in full before the grace period ends and interest charges are applied to the balance. If your financial situation allows you to do so, it almost doesn’t matter which credit card offer you accept. Just choose the one with the perks you want and the lowest fees and be done with it.
However, if your income makes paying the balance in full each month difficult, you’ll need to find the lowest interest rate possible in addition to the lowest fees and the biggest perks. This can be a difficult undertaking. While it’s relatively easy to find a combination of any two of those factors, it’s rare to find all three in a single offering.
- Credit Card Terminologies
The U.S. Consumer Financial Protection Bureau lists the following as the key ones to understand and what they mean.
- APR. Sometimes the offer will list several rates or a range of rates, and you won’t know the rate you’ll get until after you’re approved. Don’t assume you will get the lowest rate advertised. Would you still want the card if you had to pay the higher advertised rates?
- APR for Balance Transfers. If you will be transferring your balance from one card to another, compare the interest rate you are paying now with the rate you’ll pay over the life of the new card – not just the introductory rate.
- Penalty APR. Check for a penalty APR. The offer must tell you what the penalty rate is, what triggers it, and how long it would last.
- Fees. Compare the fees listed on each card. Common fees include an annual fee, a cash advance fee, and a late-payment fee. If you’ll be transferring a balance, take a close look at balance-transfer fees.
- Terms Are Negotiable
If you’ve had a card for a while and always kept it in good standing, offer your current issuer a chance to match a deal before switching. Even better, if you’ve always paid on time and have a strong credit score ask for better terms — period.
A good credit card payment calculator like one from Clarity Money will show you the savings a reduction in APR would get you.
They will often agree to this. After all, card issuers are in business to make money. They’re going to be inclined to hold on to your account If they’re harvesting interest payments from you with no problems.
Ask for a better deal and let them know you’re ready to move if it isn’t granted. With that said, do your homework first to be sure you can get a better deal someplace else and use that information as a bargaining chip.
- The Caveats
The idea of getting cash back on your purchases or airline miles in exchange for so many dollars in purchases can be alluring. However, you have to read the terms and conditions carefully to ensure your spending habits will get you the perks you’re expecting.
Most of those deals include minimum purchase amounts. In other words, the rewards kick in when your spending exceeds a certain dollar amount. Further, most cards offering those deals have annual fees as well.
To make an informed decision, you’ll need to be sure your spending patterns will qualify, and you have to look at the dollar value of the reward to ensure it outweighs the fees you’ll incur. In a lot of cases, you’ll do better buying the perk on your own— particularly if interest charges are allowed to accrue on the purchase in addition to the annual fee.
As you can see, shopping for credit cards the smart way can be something of a time-consuming exercise. However, it’s better to spend time up front, than it is to lose cash you could have saved had you been willing to do a bit of reading and comparing.
