Credit cards come in all shapes, sizes, and rewards. With so many options available to you, selecting the right one from the credit card buffet can be a confusing and challenging task. Below is a basic breakdown of credit card types and purpose to help you on your way.
Before we get started, let’s establish a couple of commonsense ground rules to live by when selecting a card.
- No annual fee. It’s almost always a good idea to avoid throwing away money on a fee. Zero-annual-fee cards are optimal because you are not being charged to access your credit card. Be sure to investigate the annual fee before signing up for a new card. (There are exceptions to this rule. Just be smart!)
- Go beyond minimum monthly payments. Making the minimum payment every month may save you from penalties but isn’t doing much for paying down your balance. Go above and beyond the monthly minimum to chip away at your overall debt.
Reward and Cash Back Cards
If you budget, track purchases, and spend predictably on monthly expenses, credit cards with a built-in reward system could make sense. Credit cards that reward you for spending are increasingly common. Rewards or points come in all shapes and sizes and can be used in a variety of ways, ranging from hotel and airline discounts to home goods and other products.
The key here is to avoid charging extra or buying a little more than budgeted to earn a particular reward. That point-hoarding trap could lead you down an unforgiving path of accumulated debt.
Reward cards are best leveraged by using the card for expected monthly purchases such as gas, groceries, and other expenses, and paying those purchases off in full on a monthly basis. Maintaining a zero balance month after month leaves you free of credit card debt and with a pocket full of reward points to use as you see fit.