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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.