I use a credit for all my daily purchases. This is something that goes against what a lot of personal finance bloggers recommend, and there’s good reason for that. If you’re having trouble saving money, or getting out of debt, then often times having a credit card around can cause more problems than it solves. Some people need to cut up their credit card, or freeze it in a bowl of ice, or go to some other extreme measure in order to control their finances, and there’s absolutely nothing wrong with that. In fact, for a number of people, it’s probably the right strategy – but that doesn’t work for me. I’ve never had trouble spending within my monthly means, so having a credit card around does not trouble me.
If you’re like me, and you know your approximate monthly budget, and you don’t regularly overspend, then using a credit card for daily purchases could be a good decision, especially if your credit card has a rewards program. Not only are there a lot of consumer protections built into using a credit card, but based on the right credit card, you can actually earn some money while using your credit card. Here’s how the choose the best credit card for you.
If you carry a monthly balance, the most important thing to look for in a credit card in the monthly balance. Find one that has the lowest regular monthly balance interest rate. You’re not going to find a credit card that lets you borrow money for free, but you can move it to a place that makes you pay less. Check what your interest rate is on your latest credit card statement (check your online account if you can’t find your paper copy) and compare it to other offers. There’s a good chance you can move your balance to a card with a better rate. Also important here is if they offer temporary relief for balance transfers, for example, a lower rate or even no interest for a set period of time. Take advantage of that if you can.
Is there an annual fee for the privilege of using your card? There shouldn’t be. Companies should be competing for your business, and paying a huge annual fee is a thing of the past. Now, if you are carrying a large balance and you need a low interest rate, you may have to pay a yearly fee in order to get that low interest rate. Do the math, compare the interest rates from a free card vs an annual fee card. Depending on the balance that you carry, it might be less expensive to pay the annual fee and get a lower interest rate.
Credit Card Rewards
Everyone’s favorite part – the rewards program. If you’re already involved in a program, then finding a card that keeps giving you the same type of rewards make sense, whether that’s air miles or some points system, staying within that ecosystem makes the most sense. Which one makes the most sense to start with if you have no rewards program? Cash. Cash back is by far your best option. Even if you do the calculations and you get “more” from investing in air miles or something else, it’s often not worth the time or the hassle. It’s also often more difficult to get exactly what you want through a rewards program. You have a hundred thousand air miles, but don’t want to fly anywhere? Sure there’s other reward options, but you pay extra to convert that into a bread maker or gift card, of which there are very limited options.
If you’re not sure which credit card to use, I again have to recommend Mint. Mint does make a bit of money by doing credit card referrals, but because Mint knows your spending habits, it’s actually able to recommend the best credit card for you. Once inside Mint, under the “Ways to Save” tab, Mint will list the most popular credit cards, all their relevant info (fees, interest rates, and rewards) as well as an approximation on how much switching to that credit card could possibly save you. Definitely worth looking into. They also have a list of options for more specific criteria, like if you need a low interest card or a student card.
Which credit card do you have? Which one would you recommend?