Credit cards are not one size fits all.
Luckily it’s not hard to choose the right card – if you know how you’re going to use it.
Broadly speaking credit cards fall into one of three types.
Low Fee Cards
- Warning – this does not mean low interest rates. It usually refers to low annual fees.
- These cards usually don’t have rewards programs.
- Who are they good for? If you hardly use a credit card, but want one for emergencies or when it’s difficult to pay any other way, this is the card type for you.
Low Rate Cards
- Likely to have a higher annual fee and no rewards program but charge lower interest rates.
- Who are they good for? If you need to make purchases you can’t pay off right away, this is the card type for you.
- You will pay higher fees and higher interest rates but earn reward points toward purchases or travel.
- You may also be entitled to free travel insurance and ‘concierge services’. The concierge service can be handy if you are especially time poor or traveling overseas where language is a difficulty. They can help with hotel and restaurant bookings, concert tickets even last minute flowers. Be warned though, you will probably be charged an extra fee for using the service.
- Who are they good for? If you want to make lots of purchases through your card – to help track expenses, or simply to accumulate points – but plan to pay off the total balance by the due date, this is the card type for you.
Does it ever make sense to have two cards, even though you’ll pay two lots of annual fee? The answer is ‘yes’… sometimes. If you have a rewards card for your regular purchases but pay the full balance off every month, you can earn reward points and take advantage of the interest free period…
…but say you decide to take that holiday…
Let’s say you expect to rack up $3,000 and pay it off gradually over twelve months. This means you’ll be borrowing an average of $1,500 and at typical reward card rates of nearly 20% you’ll pay around $300 in interest, but if you use a low rate card at say 14%, you’ll only pay $210 in interest.In this case the $90 difference is probably more than the annual fee for the low rate card. …And you get to keep your interest free period on your reward card – which you loose if you don’t pay off the full balance every month.
“UP TO 55 DAYS INTEREST FREE!” – reading the fine print
Actually the fine print says 25 days from your statement date…
- so its 55 days only for what you buy the day after the statement date
- better to think of is as “at least 25 days interest free”
- and be warned… if you don’t pay the full balance by the due date you lose your interest-free period for all purchases.
What are your thoughts?
Do you have the right card? Did we leave anything out? Is there anything else you’d like to know about credit cards?
Join the conversation — leave a comment below and let us know what you’re thoughts are.