The material presented here is for educational purposes only, and is not intended to be used as financial, investment, or legal advice.
Quiz: Which Credit Card is Right for You?
Got your eye on a new entertainment center? Looking to get a little cash back to counteract what you’re spending at the pump? Either way, you’re probably considering some credit card offers.
But choosing the right credit card is a lot like dating. There are plenty of options to go around. And you probably shouldn’t just accept the first match that comes along shaking an attractive offer in your direction.
So, how do you decide between a card with a low interest rate but little or no rewards and one with a great rewards program? You'll need some basic credit card information, plus knowledge about your personal preferences and pitfalls, to make the best choice.
Before you fill out an extensive application form, answer these four quick questions to ensure you select the ideal plastic mate for your wallet.
1. How do you plan on using your card?
- I’ll mainly be making big purchases.
- I use my card just for the little things.
Big Purchases: Low APR
You may opt to get a card with a low annual percentage rate (APR) when you want to purchase items or services you can't pay for outright; for example, a much-needed air conditioning unit or a new flat-screen TV to replace your broken one. This means you'll more than likely carry a balance on the card from month-to-month. In that case, you'll want a card with a low APR and 0% introductory rate, since you'll be paying interest during the months you are unable to pay down your debt.
Little Things: Great Rewards
If you intend to use your card for lots of small purchases and pay off balances quickly, worry less about the APR and take a close look at the annual fees and reward program. If, for example, you eat out 4-5 times a week, choose a card with restaurant dining incentives and go chow down at your favorite sushi joint as much as you want. Desert Financial’s Premier Rewards American Express offers the highest number of points on eligible dining purchases, plus a lower than average interest rate.
2. What would you prefer?
- Paying an annual fee but getting more rewards
- Having fewer benefits or higher late penalties, but no annual fee
No annual fee: Low APR
A lower interest rate on your credit card means less revenue for the card issuer and, consequently, less incentive to provide you with bells and whistles, according to U.S. News. It also means that the company may find other ways to turn a profit — like charging higher late fees and penalty rates. Some companies apply a penalty interest rate that can be as high as 27.24%. Ouch. The good news is that if you shop around, you could potentially find a lower interest card that doesn’t charge a penalty APR.
Annual fee: Great Rewards
With great rewards often comes great cost. Some cash back or point-based programs carry annual fees, and it may not be a good idea to pay them unless you use a card for rewards purchases very often.
If you can earn $800 in airline points by paying a $99 annual fee, for example, then the card could be worth it. Choose a card that offers rewards on items you actually buy, though. What good are airline miles if you fly once or twice a year?
3. How soon do you plan on paying off your credit card purchases?
- Within a month of making the transaction
- I normally carry a balance from month-to-month
Carry a balance: Low APR
If you are going to carry a balance from month to month, having a card with low APR could save you a lot of money in the long run. But be careful not to fill up your card with purchases too quickly just because it has a low APR or a bargain intro rate.
According to FICO, an analytics company that provides software that computes credit scores, regularly maxing out your card can damage your credit. So not only are you increasing your overall debt, you could be hurting your chances of getting a good rate on a car, home or even a new credit card.
Pay it off quickly: Great Rewards
If you know you’re only going to pull out the plastic in the grocery store, at the gas station or at the coffee shop, opt for a rewards program that gives you the most points for those purchases and then pay them off quickly.
Using credit to pay for items you’d normally debit or pay cash for just to build up reward points carries its own set of risks, though. Scientific studies have shown that people are conditioned to overspend when they pay with a credit card.
4. Do you have other credit card balances you’d like to transfer over?
- No, I don’t plan to transfer balances.
Yes: Low APR
If you have good credit — and especially if you own a home — you’ve probably been bombarded with offers from rewards card companies boasting a 0% introductory APR.
The interest rate on a rewards card for someone with “average” credit fluctuates between 19.99-27.99% according to NerdWallet. However, you can often find lower rates at credit unions and community banks.
While rewards cards will benefit you with gift cards or cash back, many don’t have perks like free balance transfers, since the issuing company knows they won’t be making as much interest off you in the long run. If you do get a card with a balance transfer option and decide to move over your $2,000 balance, keep in mind you won’t be earning any rewards with that transfer!
The answer you selected should reveal which card is more attractive to you. If you’re a saver, the low APR card is for you. If the gift sounds more enticing, take the rewards card — and start shopping! Even better, browse around to find a card that has both a low APR and solid rewards.
Ready to pick a credit card?SEE MY OPTIONS