By Matt
With an abundance of credit cards to choose from you might be wondering which one is the best for making everyday purchases. The answer really depends on you; your spending habits and the way you use credit are extremely important factors in determining your best credit card fit. Don’t let yourself be dazzled be credit card sales pitches. Bonuses and rewards don’t mean anything if you’re not shopping at the right places or spending the required amount of money to maximize the benefits.
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Where do you shop?
Determining where you make most of your purchases is a good place to start if you are looking for the best credit card for yourself. If you make most of your purchases at supermarkets and gas stations, you will want to focus on credit cards that will reward you for shopping there.
Cash back reward programs generally offer two tiers of incentives. They will offer a lower rate of cash returned to the consumer (usually one percent) on all purchases made with the card, and a premium rate (up to five percent) at select retailers. If you are looking at a cash back credit card then make sure the premium categories align with your shopping patterns. Other reward programs also offer bonus points for shopping at sponsored partners.
How much are you spending?
Be honest with yourself; how much do you expect to purchase on your credit card? A lot of rewards and sign up bonuses have spending thresholds which must be met before they are triggered. Also check to see if the reward program limits the amount of points that can be earned in a year.
If you don’t carry a balance and are able to pay your monthly statement in full, then you should consider using your credit card on all of your purchases. In a credit card transaction the retailer is usually charged a fee, but the cardholder has unlimited monthly transactions on retail purchases, with some exceptions. This differs from a debit transaction where the number of free debits per month depends on the bank account plan.
Effectively, you can use a credit card and earn rewards without incurring any costs aside from the annual fee associated with the credit card. It should also be noted that credit cards offer more protection for consumers against fraud, defective products and undelivered services.
Reward programs or low APR
We have pointed out how paying your balance allows you to maximize your reward, but what if you do carry a balance? With typical interest rates between 12% and 22%, even a modest balance can add up to hundreds of dollars a year in interest charges. Reward cards often carry higher interest rates and annual fees than standard credit cards. No big deal if you don’t carry a balance, but if you do then all those “free” points are being offset by your interest payments.
Collecting points for shopping might sound appealing, but you have to make sure it’s not costing you money in the long run.
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