Credit Cards:
Choosing the Right
Card for You
In this section we will continue
our discussion of credit cards with
some additional useful information.
Should I pay off debt, or invest
my savings?
In most cases you are better off
paying off any high-interest debt.
For example, if you were to pay
off a 16% loan using savings that
is currently earning 4%, and you
have just saved yourself 12%. Conversely,
if you are getting a high return
on borrowed funds and have a low-interest
loan, you may be better off keeping
the loan. It's all a question
of math, so take some time to go
through a cost-benefit analysis
to ensure you're making the
most of your money.
Should I consolidate my credit card
debt?
If you have the opportunity to transfer
all of your card balances to one
card with a lower interest rate,
you can definitely save yourself
a lot of money. However, read the
fine print! Cards offering these
low rates that sound too good to
be true often are: they may have
a low rate that only lasts for a
short time before it shoots back
up to a rate even higher than what
you are paying elsewhere right now.
If you can pay off the balance before
this 'grace period' ends, consider this as an option,
but make sure you understand all
of the terms of the new card before
signing, including the length of
the grace period and any annual
fees.
How do I pick the best card for
me?
In addition to understanding your
patterns of use, here are some questions
you can ask yourself to help narrow
down the choices:
-
Do you generally carry a balance
or pay it in full each month?
-
How often do you use cards, and
for what types of purchase? (Occasionally,
frequently, every day instead of
carrying cash, etc.)
-
Which of the various features and
benefits offered by different cards
are most important to you?
-
Is there a charity or institution
you would like to support through
your choice of credit cards?
-
Is there a rebate or miles program
that would be of particular benefit
for you?
-
Do you need a separate card for
business expenses?
Don't forget the fine print
Once you have a good idea of what
you want and need in a credit card,
start to compare and find the one
best suited to your needs. In doing
so, make absolutely sure that you
read very carefully all of the fine
print in the agreement. This is
a boring, tedious, but very important
step that will help you avoid any
unnecessary (and potentially costly!)
surprises. Be sure that you understand
how the card works and what you
can expect as a user of that card. For example, pay close attention
to the interest rate. What is it?
Is it fixed, or variable? If it
is a special lower rate, how long
does this rate last, and what will
it become once this period ends?
Also, how is interest calculated?
This can really matter, since sometimes
interest is based on the average
daily balance from the past monthly
cycle, whereas some types of cards
use a two-cycle method. You will
also want to find out if there is
a grace period before interest is
charged, and if so, how long it
is. What fees, if any, are attached
to the card? (This includes annual
fees and any other potential fees
– find out the circumstances
under which these would apply).
Finally, find out what special features
or programs are offered by the card.
With all of these pieces of information
in hand, you'll be equipped
to make the best decision in finding
the most suitable card for your
needs.
One final caution
Read the notices
included with your statements!
When you get those notices with
your statement advising you of a
change to your card agreement, read
them! They contain important information
that can really change the terms
of the original agreement you had
when you signed up. As financial
services consolidation continues
and fewer, larger companies make
up the credit card business, there
is a good chance that your account
could at some time be sold to another
credit card company. If this happens,
the new owner can change the terms
of your agreement (usually the interest
rate and fees charged). To avoid
these sorts of surprises, pay attention
to those little slips of paper that
sometimes arrive with your statement - you could save yourself
a lot of money in the long run.
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