Choosing a Credit Card

A credit card can provide you with the financial freedom you need to make larger purchases and quick buys when you do not have cash handy. However, credit cards can also saddle you with mountains of high-interest debt.

The key to using credit wisely often lies in choosing the right credit card for your needs.

There are a host of factors that you should consider before signing up for a credit card. If you study your options carefully, the odds are higher that you'll make the right credit card choice.

Interest rate

The most important number to know when it comes to a credit card is the card's interest rate. Usually expressed as an annual percentage rate, the interest rates on most consumer credit cards range from 12 percent to as high as 25 percent. The lower the rate, the better.

The interest rate kicks in when you do not pay off your credit card's balance each month. Moreover, if your card's interest rate is high, the amount of charged interest can soar quickly.

Consider that the Federal Reserve Board estimates that a credit card balance of $4,000 with an interest rate of 18 percent will take 94 months to pay off if a minimum monthly payment of $80 is made each month. During this time, you'll pay $3,448 in interest charges on that $4,000 debt.

That does not seem like a good deal because it is not. Carrying high balances on your credit cards can cost you thousands of dollars. That is why it is important to find the lowest interest rate possible if you are likely to carry a monthly balance on your credit cards.

Of course, if you pay off your card's balance every month, interest rates will not matter. They only kick in when you carry that card balance from one month to the next.


Credit card companies often charge a host of fees. It is important to study the paperwork that comes with your credit card so that these fees do not surprise you.

Your card might charge an annual fee that you'll have to pay every year. These fees vary but can range from $20 to more than $100. Some cards will charge an application fee when you apply for them while others will charge a set-up fee after you open a new account with them. Cash advance fees can add up, too. Most cards will charge you every time you use them to get cash. That fee might be a flat fee of, say, $5 or a percentage of the amount of cash you access with your credit card.

Some cards might even impose a credit-limit-increase fee if you ask for and obtain a higher credit limit.

All cards will charge you penalty fees if you pay your bill late or make purchases that put you over your credit limit. These fees, too, will vary, with some as little as $15 and others $40 or more. The real penalty with paying your credit card bill late, though, often comes in the form of a higher interest rate. Read your card agreement carefully; some credit card companies reserve the right to boost your low-interest rate to one as high as 29.99 percent if you do not pay your bill on time. Moreover, these same companies might keep your rate at the penalty level indefinitely.

Don't forget to keep these fees in mind when selecting a credit card. Too many fees and your low-interest-rate credit card might not seem like such a bargain after all.

Special offers

Some credit cards come with special offers and incentives. Cash-back cards, for example, are attractive today. These cards will refund a percentage of the purchases you make with them. You will then receive those dollars -- usually credited to your credit card account -- at regular intervals.

Some cash-back cards are category specific. They'll provide you 5 percent cash back every time you use your card to buy groceries, fill your car with gas or make hotel reservations. Other cards provide a blanket cash-back amount, awarding you a percentage of cash back with every purchase that you make with your cards.

You can also choose from several rewards cards. These cards provide you with rewards points for every purchase you make with them. After your points add up to a high enough level, you can cash them in to buy electronics, book hotel reservations or purchase restaurant gift certificates. Other rewards cards let you accumulate airline miles with every credit card purchase you make. After you gather enough miles, you can turn those miles into free flights to destinations across the globe.

Rewards cards are enticing. However, they can also be dangerous. Make sure that any rewards card for which you sign up doesn't come with high fees or interest rates. Higher rates and fees will negate any rewards or cash-back bonuses you receive. Make sure not to overspend with these cards in an effort to rack up more rewards or cash-back bonuses. Again, the amount of debt that you acquire can more than negate the rewards they provide.

Credit card shopping

Shopping for the right credit card is no easy task. Fortunately, it is easier than ever to shop for credit cards today thanks to the Internet. You can quickly access the customer agreements of a wide variety of credit cards online. You can also quickly access the interest rates, fees and incentives that these cards offer, also online.

Remember, though, that even cards with advantageous terms can lead you to financial trouble if you do not use them correctly. It is important to not overspend with credit cards. Credit card debt that comes with high interest rates can make that debt spiral out of control quickly.

If you find that you need help with your credit card spending, consider signing up with a legitimate licensed debt or credit counselor. Such a professional can help you uncover the reasons for your overspending ways and draft strategies to combat them.