Choosing the Right Credit Card

by Lithium Technologies ‎08-12-2015 04:46 PM - edited ‎08-31-2015 03:01 PM (455 Views)

Credit card offers are everywhere, but which is right for you? Here are some points to ponder.

 

To Save Money
If you carry a balance each month, you’ll want a card with a low annual interest rate so you’re not paying too much for the choice. Many card rates are based on the prime lending rate plus an additional fee (usually around 13 percent). If prime is 3.25 percent, that means you’d pay $162.50 on a $1,000 balance over a year. Carrying a balance is not ideal, but there are times when it might be reasonable—such as if you think you’ll have a financial setback or major expense, or you’re wary of spending your savings. And it’s certainly better than seeking a payday loan.

 

To Enjoy Perks
If you pay off your balance each month, you can opt for a card with a higher interest rate. These will usually offer rewards such as travel, merchandise or cash back. Because you’re diligent about paying off your balance, the higher interest rate won’t matter. Rewards cards usually require better-than-average credit for approval, however. And because rewards—especially cash back—can be costly to the credit card company, some cards have annual fees. It’s worth doing the math to see if the benefits outweigh your costs.

 

Other Considerations
Before you apply for a card, always read the contract, and know the answers to these questions:

  • If there’s an introductory interest rate, how low is it and how long will it last?
       When it expires, how high will the standard rate be?
  • If you’re transferring a balance from a high-rate card onto one with a low rate, how long will that rate last?
       And what is the fee?
  • Do rewards kick in only after you spend a minimum amount, or only in certain categories?
       Are there limits on the rewards you can earn?
  • Does the card offer additional benefits such as rental car insurance, or impose fees for transactions
       such as cash advances or purchases made in a foreign country?

 

To find out more, visit AAA’s online banking site.

 

A version of this story appears in the September/October 2015 issue of AAA Living magazine.

 

Image credit/source: Jose Luis Pelaez/getty

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