Note: The following is a Savvy Sugar guest post by Kimberly Palmer, the author of Generation Earn: The Young Professional’s Guide to Spending, Investing, and Giving Back, and personal finance columnist at US News & World Report. Take it away, Kimberly . . .
Even in our post-recession, tight credit market world, choosing a credit card can feel more overwhelming than sorting through dating profiles on Match.com. There are about a gazillion choices, each slightly different from the next, and who knows exactly what we want, anyway?
The good news is that with a little introspection, you can pick the card that will do the most for you, whether that means minimizing your fee and interest payments or getting you a free spa trip every few months with all your rewards points. Here are six key questions to ask yourself before selecting a piece of plastic:
1. Do you tend to carry debt?
This is really the most important question, because if you carry any debt at all, meaning you don’t pay off your balance in full each month, then there is only one thing you need to worry about when selecting a card: finding the lowest interest rate. If you have debt, then you don’t have the luxury of even considering rewards points or other perks, because the extra costs in the form of interest payments are simply not worth it. On average, rewards cards carry an interest rate that’s about two percentage points higher than non-rewards cards, which means debt-carriers pay dearly for those rewards. Instead, look for a card like the Discover More card, which offers 12 months at a 0 percent introductory rate.
2) What’s your spending style?
Do you use your credit card for absolutely everything, from coffee purchases to phone bills? Or are you more selective about your plastic habit, and only use it for online purchase, or hotel rooms? Your answer matters, because if you seldom use your card, then you want to be absolutely sure you won’t be charged annual fees for simply carrying the card around, and you certainly don’t want to pay extra for additional warranties or travel insurance if you are barely enjoying those benefits. On the other hand, if you use your card a lot and are racking up the rewards points (while taking care to pay off the balance each month, of course), then you’ll want to look more closely at those extra goodies. Extended warranties, identify theft protection, customized discounts at your favorite retailers, and travel insurance are just a few of the options.
3) What free tools do you want?
Credit cards and banks are increasingly tempting users with online tools that analyze your spending patterns, help you set and reach savings goals, and alert you with low balance warnings. If you want that extra hand-holding, then make sure you select a card that offers it. But if you have your own systems in place already, then you can skip these bells and whistles.
4) What are your favorite perks?
When someone’s giving you a present, do you hope for cash? A gift certificate? Or an actual gift, like jewelry? Like romantic partners, credit cards vary widely in the types of presents they offer, with some sticking with cash or airline miles and others pushing household appliances, diamond bracelets, and even meet-and-greets with celebrities (American Express). If you have a strong preference for one type of reward, make sure your card offers it.
5) How much time and energy do you want to spend thinking about your credit card?
If your life is already insanely busy that you barely have time to call your mom, let alone spend hours with your credit card company, then simple is better. Look for a card that automatically transfers your earned rewards into your account in the form of cash, or otherwise makes your life easier and not more complicated. Otherwise, you might end up forgetting about your rewards altogether and never enjoying them.
6) What’s your favorite way to stay in touch?
If you’re big on the social networking scene, then you might want a card issuer with a Twitter and Facebook presence. On Twitter, the handle @Ask_WellsFargo responds directly to customer questions during daytime hours. Likewise, if you like to pay your bill with your mobile phone, then be sure your card of choice allows for that. After deciding how you feel about these questions, you can find the card that meets your needs through a credit card comparison site, such as NerdWallet.com, IndexCreditCards.com, CardRatings.com, and creditcards.com. The details of card offerings are updated more frequently than your Facebook newsfeed, so be sure to confirm with the card issuer directly to double check the offer still stands. Happy shopping!