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Finding the Credit Card That’s Right for You

Financial experts often preach about the dangers of credit cards. With some interest rates pushing 30%, they’re completely right to warn consumers.

That being said, it’s increasingly rare to find someone who doesn’t have at least one credit card in his or her wallet. It’s just so easy to swipe the plastic, and it’s more convenient than carrying a big pile of cash. Plus, with many credit cards, you can earn rewards for your purchases.

 

But wait – before you spend too much time looking at rewards programs, think about (1) why you’re looking for a new credit card and (2) how you intend to use it. Someone who only uses the card a few times a year for emergencies will probably want a very different card than someone who plans to charge every purchase every day. Likewise, the person who pays off their balance every month won’t want the same card as someone who plans to carry a balance.

Cards with Low Fees

Low-fee cards have relatively low interest rates and little-to-no annual fee. These cards are more appropriate for people who carry a balance from month to month. They’re also useful for infrequent credit card spenders or those who only intend to use a card for emergencies. These consumers don’t need anything fancy. They just need to keep costs as low as possible.

If you have strong credit and you’re trying to rapidly pay down some credit card debt, you might consider looking for a card with a 0% introductory rate. While this rate may only last six months or a year, eliminating the interest could help you pay down your debt faster. Keep in mind, though, that transferring balances from card to card SHOULD NOT be your long-term strategy!

Airline Mile Cards

As the name suggests, this card is ideal for the frequent flier. If you fly different airlines all the time, there are some credit cards that allow consumers to use miles on most major carriers. If you fly the same airline for most trips, look for a card specific to that airline. In addition to accumulating points toward travel, many cards offer bonus points for purchasing travel on a particular website and using their hotel and car rental affiliates.

Be sure you understand how your air miles card works. Many have annual fees, and some cards impose blackout dates and/or let miles expire after a certain period of time. Do you travel enough to make it worth your while?

Rewards Cards

These cards figuratively come in all shapes and sizes – rewards may be redeemable for cash back, gift cards, hotel rooms or even a discount on the price of a car. Because of the wide variety of options, rewards cards are often the right choice for the everyday credit card spender who doesn’t carry a balance from month to month.

For most rewards credit cards, the consumer earns a point for every dollar spent. Some cards also offer bonus points for spending at certain stores, on certain items or during a certain timeframe.

As with airline miles cards, rewards cards are likely to have fees, and points may expire.

There’s no shortage of great sign-up bonuses. But if the bonus is the main reason you’re signing up, it’s probably not a good idea to get the card. Every time you apply for a new credit card, the issuer runs a credit check, which causes your credit score to drop a little in the short-term.

If you’re looking for more information about credit cards, and even quizzes to pinpoint which kind of card is best for you, check out websites like creditcards.com and bankrate.com.

Remember, nobody becomes a millionaire by cashing in credit card points. Financial success comes from devoting yourself to a long-term strategy of living within your means. If you have questions about credit cards or credit card debt, or you’re looking for help developing your long-term investment strategy, call Smart401k at 877.627.8401.

Joe McCulloch

Smart401k Senior Investment Adviser

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About Smart401k

Smart401k is a web-based investment advisory service providing unbiased recommendations to help people invest in employer-sponsored retirement plans. Smart401k provides service to nearly 11,000 clients who collectively have more than $2 billion in assets. Plan participants receive personalized, fund-specific investment recommendations and the support of professional investment advisers available to discuss all investment questions. Based in Overland Park, KS, Smart401k is online at Smart401k.com.