Managing Credit and Debt

How do I pick a credit card?

Like choosing a new suit, picking the right credit card is all about knowing your personal style. “Be really honest with yourself about your spending habits,” says Gerri Detweiler, director of consumer education at Credit.com. Find the description below that best matches your spending habits, then click through for picks for specific cards.

I carry a balance from month to month.

Best type of card: Low-interest or 0% balance transfer. If you don’t think you’ll be able to pay off your card within a few months, opt for the lowest possible fixed-rate card you can find (keep in mind that all card rates are subject to change). On a serious repayment plan? You may be able to save money by moving the balance to a card that offers a low or zero-percent “teaser” rate. Keep in mind that the interest rate on these cards will usually spike after a couple of months, so read the terms carefully and make sure you can pay it off within the interest-free window. Also, watch out for balance transfer fees, which can undo some of the benefits of a transfer.

I pay my balance in full.

Best type of card: Rewards. Take a look at your spending patterns over the last few months to assess where you’ll rack up the biggest rewards. If your spending is heavily concentrated in a single area – say, gas, groceries or travel – you may want a card that gives you extra points in that area. Are you a big spender but not in those categories? You’ll probably do well with a cash-back card offers rewards as a percentage of dollars charged across the board.

Keep in mind that cards with juicy rewards typically come with annual fees, so you’ll want to figure out if you’ll recoup the the fee. For a card with 2% cash back and a $50 fee, you’d divide 50 by 0.02 to get $2,500. If your last year’s spending exceeded that amount, then the card pays for itself; otherwise you’re losing money. If you travel very frequently, it may be worth paying a fee for a card that helps you quickly rack up enough miles or points for pricey air tickets or hotel rooms or allows you to avoid, say, the typical $25 fee for checked luggage. Keep in mind that card issuers generally require a good to excellent credit score to qualify for cards that come with big perks. And these cards are not right for those who carry balances since they tend to have higher interest rates than other cards, and finance charges can easily erase the value of the rewards.

I can’t qualify for a credit card.

Best type of card: Secured. Even if you have poor credit or no credit, you can usually qualify for this type of card. You put money into a deposit account with the issuer to serve as “collateral” for the full amount of your line of credit. Since you don’t have a track record of using credit wisely, issuers will want to protect their bases by having collateral; if you don’t pay your bill, the bank will simply take the money in the deposit account. The credit limit on a secured card will typically be much lower than you’d get on an unsecured card, since it’s based on you having collateral. But even so, responsible use of a secured card will help rebuild your credit, and you may be able to increase the credit line down the road.

 

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