We often pull out our credit cards during this holiday season much like a Ninja warrior would unleash their Samurai sword from its sheath. Credits cards can be our friend or our foe depending on how we choose to use this weapon. During this peak month of shopping, every store you purchase merchandise from will tempt you with a big discount at the cash register to get a store card Johnny on the spot. I’m not a big personal fan of carrying revolving credit card debt, and I don’t recommend it is a habit you get into within your financial life. Going to work every day to pay obligations can lead to a high amount of stress. Credit cards, when used appropriately, can actually help you in the positive column by potentially rewarding you with extra cash back, frequent flier miles, or some type of point structure to redeem prizes behind door number three. So, how do you actually pick a credit card that is right for your situation? Here are few tips to think about when you decide what two or three weapons to have in your wallet or purse.
* Do you pay off your bills monthly or will you be revolving debt? – This is an important initial question. You need to read the details of your credit card offering for the finance charges on both new purchases and the revolving balance of the card. This will be especially important if you are transferring a balance from an old credit card or you do not currently have the resources to pay off your existing credit card balance. If you do not revolve debt, then the finance charges will be less important in the overall decision.
* What kind of rewards do you want to earn from your credit card? – You need to determine first what kinds of rewards are offered on both fee based and non fee based cards. If you are a good saver, a no fee cash back credit card will likely be among your best options. However, many people don’t save the cash they get back from their credit card. You can also consider reward cards that offer frequent flier points or a bank of overall points that you can use for a variety of rewards when you are ready to treat yourself. I’ve seen many articles that say never pay a fee. However, some cards offer free shipping on merchandise you purchase, access to different frequent flier clubs, and even allow for extended warranties on items you purchase. It’s important to compare all of the features and benefits side by side so you can maximize your credit card rewards.
* Read the Schumer Box – Senator Charles E Schumer created the Schumer Box as part of the 1988 Truth In Lending Act. Credit card companies are required to display their long term rates in at least 18 point type and all other rates, terms, and conditions in at least 12 point type. The Schumer box will list things like annual fee, annual percentage rate on purchases, annual percentage rate on transfers, late fees, grace period, and finance calculation method.
* Will your credit card company work with you? – It is getting harder and harder to get credit in this difficult lending environment. Do some homework to see how often your credit card company may shrink your overall line of credit. Or vice versa, what kind of spending do you need to do on the card to increase your overall line of credit. Access to capital is extremely important for your personal finances and don’t close out the credit cards once you have paid them off. It can actually help your credit score to have more credit and revolve which cards you use on a monthly basis.
I don’t recommend getting a card just because your favorite department store gives you a meaty 15% discount on your first purchase. These store cards often have the highest interest rates around. Picking your credit card is not an easy task with all of the offers that may come to you in the mail on a regular basis. Think about your ultimate goal whether it is interest rate, rewards, or some other type of perks and what fees (if any) you are willing to pay for the card. You too can become a credit card Ninja Warrior.
Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®
Co-CEO and Founder of oXYGen Financial, Inc – The Leaders in Gen X & Y Financial Advice and Services
Ted Jenkin is one of the foremost knowledgeable professionals in giving financial advice to the X and Y Generation.
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