Would you like learn how to choose the best credit card for you? If so, keep reading. I’ll reveal five big things you should weigh before making a final decision. If you go about it the right way, you’ll save yourself a lot of money over the long term.
1. Look for a low Annual Percentage Rate (APR)
The APR is the interest rate percentage that you’ll pay on money that you’re borrowing to buy goods and services through your credit card. As the name says, this is the annual rate.
For example, if you charged $1000 on your credit card that carried an APR of 12%, in theory you could pay up to $120 in interest if you didn’t pay off the balance within a year. The APR takes into account things such any fees or services charges that may occur.
2. Pay attention to the Penalty Rate
Just because you find a credit card with a low APR, that doesn’t it will always stay that way. If you miss a payment, go over the credit card’s limit, or fail to keep your credit score high, your card could be assigned the dreaded penalty rate. That’s bad news because the new rate could easily be twice as high as the original rate.
3. Review the method for calculating the monthly balance
When you see the total amount on your monthly credit card statement, it’s usually made up of both interest charges and your purchases. Well, credit card companies can use a variety of methods to calculate the balance, and some methods will cost you more money. Here are the 4 that you will typically come across:
Favorable Interest Calculation Methods
– Average daily balance (including new purchases) – Under this method, the credit card company will calculate what the average balance was on your credit card for each day during the current billing cycle. They’ll also take into account any new purchases and payments. So let’s say that for the last 30 days you carried an average daily balance of $1,036.28. This is the amount the credit card company would use to calculate the amount of interest to charge you.
– Average daily balance (excluding new purchases) – This calculation is the same as above except that the credit card company will ignore any new purchases during the period. When new purchases are excluded, this will lower your average daily balance. As a result, this will also reduce the amount of interest you’ll have to pay by a little more.
Bottom-line: You should seek out credit cards that calculate interest based on the Average daily balance (excluding new purchases) method.
Unfavorable Interest Calculation Methods
– Two-cycle average daily balance (including new purchases) – Under this method, the credit card company will use the current and the prior billing cycles to calculate how much interest you’ll pay.
Taking from the first example above, we indicated that interest would be calculated based on an average daily balance of $1,036.28 for the current billing cycle.
Well, the two-cycle approach goes a step further and performs the same calculation for the prior billing cycle too. The interest calculated for that period will then be added to the current period interest, and that’s how much you’ll be billed.
The point is that the amount you pay in interest under this method could be substantially higher than with either of the two favorable calculation methods. It’s a double-whammy.
– Two-cycle average daily balance (excluding new purchases) – This two cycle method is just like the one discussed above except that new purchases are excluded from the calculation. That makes it better, but not by much.
Bottom-line: Avoid credit cards that calculate average daily balances using the two-cycle method.
4. Watch out for fees
Credit card companies will take every opportunity they can to hit you with a fee. Examples include: late payment fees, over-the-limit fees, returned check fees, annual fee, cash advance fees, etc.
While all these fees are important, you should be most concerned about the ones that might affect you. For example, the late payment fees and annual card fee are the two biggest money makers for credit card companies. So you’d want to make them prominent when making comparisons to other cards.
5. Compare Grace Periods
Believe it or not, credit card companies aren’t charging you interest every day that your balance is outstanding. There’s generally a window of 20 to 30 days after each billing cycle where you are given an opportunity to make payments on the amount due. During this “grace” period, no interest will be charged to your account.
The standard grace period these days is around 25 days, but if you can find a longer period then more power to you. That’s a plus.
Narrow Your Credit Card Search
There are hundreds of credit cards to choose from. So you’ll have to have some criteria for narrowing the selection. Of course, the above elements are a given. But you might also have some specific personal preferences.
For example, perhaps a credit card that offers reward points that can be redeemed for air travel, hotels, etc., could help to finance your adventurous lifestyle. Then there are other credit cards that will give you cash back for your purchases. There are lots of choices.
Click the banner below to compare over 100 low interest credit cards. Many of them even offer 0% introductory rates for up to 18 months.
Again, be sure to examine all of the features and benefits offered by the credit card company. You may discover a component that gives one card an edge over the other.
Credit Card Evaluation Form
Now that you know the most important attributes for how to choose the best credit card for you, create a spreadsheet like the one below to compare cards.
Keep in mind that you may have to dig into the terms and conditions for the card to find information about the balance calculation method or grace period.
Once again, you’ll find the cream of the crop credit cards here…