Nothing says “welcome to adulthood” quite like getting your first credit card bill. Having a credit card gives you the chance to build a solid credit history. However, it also comes with the risk of ending up in the red. Whether you’re a first-time credit card shopper or an experienced cardholder, there are a few key points to consider. Credit cards have varying interest rates, fees and rewards. Evaluating your particular needs can help you avoid being dragged down by credit card debt.
How will you be using the card?
Will you be making small, regular purchases such as buying groceries or filling up your gas tank? Or buying more expensive items? If you’ll be using it frequently, it might be worth finding a card that offers generous rewards. If you’ll only be using it occasionally, these may not matter as much to you. Remember that major purchases require a higher credit limit—the maximum amount you can borrow.
Do you anticipate running a balance each month? If so, be sure to find a credit card with the lowest possible interest rate. This will save you money in the long term. Sure, the card may offer great rewards or a lower annual fee. However, these will be quickly overshadowed if you’re paying a steep interest rate on a running balance. Paying your entire monthly balance will let you focus more on the card’s rewards instead of the interest rate.
Which rewards are right for you?
Are you hoping your points will launch you into the skies on your dream vacation? Or are you trying to knock off a few cents at the gas pump? If you’re planning on using the card to accumulate rewards, make sure they apply to something that you’ll use. Furthermore, there may be specific rules around how and when you can redeem your points. For example, you may be able to use them towards your next flight. Or they might be applied to your next credit card bill to reduce your balance owed. The same idea applies for collecting your rewards points. If you eat out a lot, you may want a card that offers bonus rewards at certain restaurants.
No matter which card you choose, read the fine print to avoid feeling deceived by collecting rewards you can’t use. An effective way to maximize your reward benefits is to review your spending patterns from the past few months. This way, you can identify any major areas of spending where you could be accumulating points. If you don’t envision any particular use for your rewards, you may want to choose a card with cashback rewards. This way, you’ll redeem points for cash, to spend as you please.
How do the terms and conditions compare?
This is particularly pertinent for cardholders who anticipate running a balance. Besides the interest rate applied to any balance owed, it’s important to consider the card’s minimum monthly payment amount. You usually either pay a percentage of your balance or a fixed amount. If there’s an annual fee, weigh it against any benefits (rewards, low interest, etc.) to see if it’s worthwhile. Other fees may include those for cash advances or missed payments. Higher fees may be outweighed by access to rental car insurance, travel insurance or roadside assistance. Some cards even offer a lower introductory interest rate as an incentive to sign up. In the event you miss a monthly payment or exceed your credit limit, however, this benefit will be cancelled. Again, it’s important to assess your personal needs so you can get the most out of your card.