Credit cards can be a really great way to buy things online, to incur points from your spending and to deal with money when traveling. However, for those of us who are new to credit cards or struggle with compulsive shopping, credit cards can be a bit of a challenge. If you’re thinking of getting a credit card for the first time or getting a new one to better suit your needs, here are three tips for choosing a credit card.
1. Be Realistic
Credit card companies will often offer you exceptionally big limits compared to your income. For example, the first time I applied for a credit card I was offered one with a $25,000 limit. I’m not sure who would need a limit that big unless you plan to buy a brand new car on your credit card. The truth is, credit card companies are businesses, just like any other business they need to make a profit. They make a profit by charging interest on your balance and penalties for late payments. So my first suggestion for choosing a credit card is to find one that has a realistic limit. If you get offered a high limit, don’t be afraid to ask for a smaller, more modest one. As a general rule, I wouldn’t have a limit larger than what I could afford to pay back in a month – in my opinion, anything larger than that is a recipe for disaster.
2. Check Out the Extras
My current credit card offers miles, and in the short time I’ve had it, I’ve already traveled long haul on three return flights. I’ve had numerous upgrades, utilized the free travel insurance that it offers and enjoyed having my flight status upgraded. Many credits have a variety of different bonuses, so it’s important to take the time to find out the one that’s best for you. If you don’t travel a lot, maybe you would be better off using a credit card that collects points you can redeem in stores that you frequent. This can be a fun way to build up points and get extra rewards from spending money that you have to spend anyway!
3. Look at the Annual Fees
While the extras that come along with credit cards can be mighty appealing – be sure to make sure that you check out the annual fees. You might be surprised to see that many credit card companies offer no fees for the first year, but after you’ve signed the contract and got hooked, the fees can be hundreds of dollars and often they offset the free bonuses you can get from using your credit card. Sit down and do the numbers to see what the credit card is really going to cost you.
If you have compulsive shopping issues or have found yourself struggling with debt, it may not be the best idea to apply for a credit card. Only do so if you’re confident you can keep on top of it, otherwise, you may be better off with a Debit Card.