Comparing Credit Cards

8 features to look for when searching for the right card for your needs.

Securing the right credit card or combination of credit cards can give you a definite edge when it comes to your ability to manage debt effectively. You want to avoid signing up for every credit card offer you receive and in fact, you should really only sign up for credit cards when you have a specific need for one. As a result, even if you’re an advanced credit user who takes strategic advantage of credit card reward programs, you only need a few cards to manage your finances effectively.

What’s the most important factor?

Out of the eight factors presented, interest rate and fees are of the utmost importance when it comes to choosing the right card. You want the lowest interest rate possible and the least amount of fees to use the card. This helps minimize the cost of using credit so you’re not shelling out a lot of money for the convenience of using your cards.

Of course, rates and fees are likely to be higher with credit cards that offer additional features, such as cash-back or travel reward programs. However, when comparing credit cards that offer those features, you want to focus on getting the lowest rates and fees for that particular type of credit card.

Just keep in mind that for rewards credit cards you also have to balance rates and fees against reward limitations. For example, a travel rewards credit card with a low rate may have significant blackout dates that make it tough to take advantage of the rewards you earn. If a rewards credit card is so restricted that you can’t take advantage of the rewards you earn then it’s not a good card for you needs no matter how low the rates and fees are.

Comparing credit cards for transactions

Once you have the right credit cards for your needs, you have to make sure you use them for the right purposes. This will help you manage your debt effectively while minimizing interest charges and fees.

You might think if you have a rewards credit card that offers a percentage cash-back on every purchase you make that this would be the credit card you’d want to use all the time. However, that may not be the case.

Consider if you have a purchase that you know will take a few billing cycles to pay off, such as purchasing a new TV or clothes for your children for back to school. In this case since interest charges will be applied over a period of several billing cycles while you work to pay off the debt, using a rewards credit card wouldn’t be to you advantage. That’s because the cash back you earn will be offset by interest charges accrued during the payoff.

So if you have a $1,000 purchase that will take 4 billing cycles to pay off, 1.5% cash back means you earn $15 cash back. However over those four billing cycles on a rewards credit card with a standard APR of 20%, interest charges would add up to around $38.02. So the purchase actually ends up costing $23.02 rather than earning $15.

If you put the same purchase on a low-interest credit card at 12% APR and pay off the debt within the same 4 billing cycles, the total interest charges are only $22.48. It still costs you, but even with the cash back on the other card, it doesn’t cost as much on the low-APR credit card. This is why purchases that will take several billing cycles to pay off are better placed on low-APR credit cards rather than a rewards credit card that typically has higher APR.

You can use a credit card debt repayment calculator when comparing credit cards for a specific purpose to find the best card to use in each situation. This way you can be strategic when it comes to managing your debt and choosing which of your cards to use. It’s a little more work up front that can save you significant hassle once a debt has been incurred.