Perks such as travel rewards, cash back, rebates, and shopping discounts are offered by credit card companies in an attempt to attract new customers.
These perks can be hard to navigate—on top of the looming rates and charges. So, how do you find the best credit card for you?
Andrea Woroch, a consumer finance expert and blogger (andreaworoch.com), says consumers should analyze their spending habits and identify where they regularly spend money before opening a new credit card account.
Understand your spending habits
“Even though you may prefer a travel card that rewards you with free flights or hotel points, you may benefit more from a cash back card that gives you extra money for all your grocery purchases—that cash value could amount to more than the miles you’d earn toward those free flights,” says Woroch.
Woroch recommends CardRates.com for detailed reviews of various rewards programs. She also suggests using an online credit card matching tool, such as GigaPoints.com.
“They analyze your spending habits and show you which rewards card will earn you more [whether through miles or cash back or points], based on the types of purchases you make the most,” says Woroch. “For instance, I learned I could’ve made an extra $1,900 in cash back last year if I had used an American Express Gold Card—guess it’s time to switch!”
Prioritize credit card interest rates over rewards
Think of credit card rewards programs as shiny objects designed to distract you from other less appealing aspects of credit, like interest rates and finance charges.
Ted Rossman, a senior industry analyst at CreditCards.com, says, “The first question people need to ask themselves when comparing credit cards is, ‘Do I carry a balance?’ More than half of active credit cardholders do—according to the American Bankers Association—so they should prioritize their interest rate rather than rewards.”
Rossman says that with the average credit card interest rate at 16%, it doesn’t make sense to pursue the 3% in cash back or travel points if you carry a balance. He tells consumers to get the lowest rate possible, and consequently, focus on rewards once they’re free from credit card debt.
“Our research has found that most people prefer the simple, universal appeal of cash back,” says Rossman. “I think a no-annual-fee card that gives 2% cash back on everything is the best way to go.”
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