There are so many cards out there that it’s tough to choose the one that’s right for you. For the next six weeks, I’ll give you assignments designed to help you choose your perfect rewards card.
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Welcome. Over the next six weeks, I’m going to guide you through a series of steps with the ultimate goal of picking the best rewards credit card for you. Whether you’re thinking of signing up for a new card, sorting through what you already have or just browsing, I’m going to share my thought process and best practices for making sense of what can be a complicated, individual decision.
Each weekly column will include plenty of actionable advice, and while the steps are intended to be completed in order, don’t worry if you miss one. We’ll keep an archive, and each edition will include some standalone benefits. Let’s begin.
Check out all the answers from our credit card experts.
Your first assignment
I’ll start with some good news: This is one of the best times in history to sign up for a new credit card. Several cards are offering record-high sign-up bonuses, a bunch of compelling new cash back cards hit the market this summer, 0% balance transfer cards have come out of hibernation and the travel industry is on the mend. The pandemic isn’t over, unfortunately, but banks are feeling a lot better about risk, jobs and the economy. They’re competing aggressively for your business.
Of course, an important step in figuring out where you’re going is reviewing where you’ve been. That’s why I want you to start this challenge by examining your current card portfolio. If you’re new to credit cards, you may be looking at a completely blank canvas. That’s totally fine. But if you already have credit cards, I want you to make a list of the cards you currently own.
Include the interest rate, the rewards categories and any other relevant benefits (airport lounge access, free checked bags, purchase protection, extended warranty coverage, etc.). You might even want to download your credit reports to help with this exercise. (You can access them free at AnnualCreditReport.com). People sometimes forget about some of their cards, especially store-specific cards and cards they don’t use regularly.
The interest rate is extremely important if you ever carry a balance. If you do carry a balance, you have plenty of company. The American Bankers Association says 54% of active credit cardholders carry debt from month to month.
The average credit card charges more than 16%, so if you have credit card debt, your interest rate is a lot more impactful than your rewards rate. It doesn’t make sense to pay 16% interest just to earn 1%, 2% or even 5% in cash back or an equivalent amount of airline miles or hotel points.
If you have credit card debt
My best advice if you have credit card debt is to forget about rewards for a while and focus on obtaining the lowest possible interest rate. On a temporary basis, that’s going to be a 0% balance transfer card. Here are some of my favorites:
- U.S. Bank Visa® Platinum Card: Offers 20 billing cycles with 0% intro APR on balance transfers and new purchases (after that, the variable APR ranges from 15.24% to 25.24%, depending on your creditworthiness). The balance transfer fee is 3% or $5, whichever is greater.
- Citi® Diamond Preferred® Card: Offers 21 months with 0% intro APR on balance transfers and 12 months with 0% intro APR on new purchases (after the intro periods, the variable APR ranges from 13.99% to 23.99%, depending on your creditworthiness). The balance transfer fee is 5% or $5, whichever is greater. Balance transfers must be completed within four months of opening the account.
- BankAmericard® credit card: Offers 18 billing cycles with 0% intro APR on balance transfers and new purchases (after that, the variable APR ranges from 13.74% to 23.74%, depending on your creditworthiness). The balance transfer fee is 3% or $10, whichever is greater. Balance transfers must be completed within 60 days of opening the account.
Depending on how much you owe, these cards could save you hundreds or even thousands of dollars in interest. Make sure you’re making real progress, though. A 0% balance transfer promotion shouldn’t be an excuse to kick the can down the road. The best way to use one of these cards is to avoid making any new purchases. Divide how much you owe by the number of months in your 0% term and try to stick with that monthly payment.
If you don’t have credit card debt
Now, on to the fun stuff. If you’re able to consistently pay your credit card bills in full, your interest rate doesn’t really matter, so you should focus on rewards. Sorting through your current cards’ rewards categories is a useful way to identify any gaps that may exist.
In the next installment, we’ll focus even more on how your individual spending habits should match the right rewards categories. For now, I want you to start by identifying the broader patterns. You might be surprised to note that some of your cards may have changed.
For example, the Chase Sapphire Preferred Card recently unveiled enhanced travel, dining, streaming and online grocery rewards. The Platinum Card® from American Express has a bunch of new lifestyle-oriented credits that have expanded its value proposition beyond travel into categories such as digital entertainment, fitness and food delivery. And last year, the Citi Premier® Card upped its restaurant and grocery benefits. All three of those cards are offering unusually high welcome offers as well.
The average American has 3.0 bank-issued credit cards and 2.3 retailer-branded cards, according to Experian. The ideal number varies from person to person. While I know some people who happily juggle 20 or more cards, the most I’ve ever had at any given time was six, and I decided that was too many for me. Keeping track of a half dozen monthly statements was a chore. I was paying three annual fees and many of the benefits overlapped. I decided to focus on the two cards I like best – and only one of them charges an annual fee.
Next week, I’ll go into more detail regarding those two cards, and I’ll help you align your spending habits with the right cards for you.
Have a question about credit cards? E-mail me at firstname.lastname@example.org and I’d be happy to help.
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