Sunday, May 8, 2011, AM | 1 Comment
We all know that credit cards are a convenient way for buying groceries and other merchandise. It is NOT, however, the best means for borrowing money. We also know that credit cards carry higher interest than most other means of getting loans. When you use it for convenience and pay your monthly bills on time and in full, then it can fit in well with your needs, activities and plans for your financial life.
There is quite an intense marketing campaign going on once again for credit cards in media from all types of financial organizations. Your mailbox is perhaps frequently filled with offers. However, you just don’t start filling out the first application form you see. Choosing the right credit card and how best using it wisely are important. It can make big differences in your finances.
How to evaluate credit cards
When you receive marketing material from a credit card issuer, often it can be very confusing and sometimes misleading. Choosing a credit card depends highly on how you intend to use it. You have to consider these variables: fees, interest rates, and benefits for using it. Few cards can rank highest on all variables. You should only choose the card that ranks highest based on how you use it.
Take the following variables into consideration for evaluating your first ever credit card:
Many cards are offered free of annual fee. Some charge $50 or more per year. Ideally, you would want to choose a card with no annual fee. However, cards with annual fee may offer much lower interest rates than ones with no annual fee and will eventually save you more money. The differences become even greater if the unpaid balance or amount of usage is higher.
Late payment fee
Fees for late payment can set you back more than $35. Be sure to check terms and conditions of the credit card agreement. You would want to thoroughly read them if you are occasionally late with a monthly payment.
If you carry over balances from one month to the next and are subject to finance charges, you will want a card that offers a low interest rate. Rates can vary by more than 10 percentage points and can exceed way above 20 percent. You should also be very careful and wary of low teaser rates, or special rates that are offered for a limited time only if you transfer balances from another card. Make sure you read the details of the agreement.
Benefits for using card
How you use a credit card may be the ultimate way of evaluating and choosing it. If you use it frequently for everything under the sun, then choose a card that gives rewards in terms of gift cards, cash back, air travel and other perks. Experts tell us a rule of thumb is that the benefits are usually worth about 1 percent of the charges.
If you do not carry over balances and thus not pay finance charges, then obviously interest rates will not matter much to you.
If you use your card heavily like I do for almost everything, then you may want to get a rewards card.
If you normally pay finance charges or interest, pay extra attention to the interest rate of the card.
Evaluate credit card provider
In addition to appraising the value of a credit card to you, you should also evaluate the company that provides it. Make sure its level of service is acceptable. You may talk to your local bank if you are satisfied with its service and evaluate offering of its credit card. Having the convenience of dealing with one institution for all your financial needs can be very beneficial to you.
In a Nutshell
Make sure your credit card provides the right combination of fees, rates, and benefits. It would depend how you intend to use it. Be sure to read and understand the terms of any credit card before accepting it.