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Credit Card Offers – How to Separate the Wheat from the Chaff

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Even in the midst of a credit meltdown, the number and variety of available credit card offers is mind-boggling. Trying to sift through all of the options can be daunting, particularly for those who want to wade into the dense terms and conditions that accompany a credit card. To make the process a bit easier, and to help you find the best credit card offer for your particular needs, we’ll look at 5 factors to consider in selecting a credit card that meets your financial needs.

Before we get to those factors, however, it’s important to know where you easily find details about a credit card–The Schumer Box. Named after Senator from New York who introduced the legislation, the Schumer Box is a required disclosure for all credit card issuers. This box provides an easy to read explanation of a credit card’s key terms. Here’s what one looks like:

schumer-box

It is important to keep in mind that the Schumer Box does not provide all of the details consumers need to evaluate before selecting a card. Most importantly, the Schumer Box will not include details about rewards programs. For this information, you’ll need to dig into the terms and conditions on the card issuer’s website. But below, we’ll show you what to look for when evaluating a card.

1. Interest Rates: When it comes to borrowing money, the lower the interest rate the better. But in the case of credit cards, that’s not always true. In fact, for those that pay off their credit cards in full every month (called “deadbeats” in the industry), the interest rate charged by the card issuer is of no consequence. Even so, why should one opt for a card with a higher interest rate? Well, all things being equal, you shouldn’t. But all things are rarely equal.

Lower rate cards typically offer fewer rewards than other cards. In fact, some of the best cash back or travel cards available do not come with the lowest interest rates. And this makes sense. The money card issuers give up by offering rich rewards, they get back by charging higher interest rates. But if you are not paying any interest, and you are looking for the best rewards card available, than the interest rate is not all that important.

If you do carry a balance from month-to-month, however, than the interest rate charged is obviously very important, and low interest credit cards may be the best option. Perhaps the lowest interest rate cards in the industry have interest rates as low as 6 or 7%, but come with few rewards. The cards are also very difficult to qualify for, requiring excellent credit, proof of income, and up to 30 days for approval. You may find some options with reasonably low rates of about 10%, and good rewards.

2. Rewards: Credit cards come with a variety of rewards, ranging from cash back to travel rewards to gas rebates. Picking the best rewards card for your financial needs depends in large part on spending habits. A gas rebate card, for example, can be a great option for those that put a lot of miles on their car. Likewise, for those frequent flyers, a travel or points card might be the best option.

As a starting point, however, consider cash back cards first. The old saying that “cash is king” is equally true with rewards cards. With cash, you can pay down your credit card bill, pay down other debt, or use the money any way you want. With travel and other reward cards, cardholders generally are limited to purchasing certain categories of products or services. And while points can often be converted to cash, the conversion rates generally are not as lucrative as just using a cash rewards card in the first place.

Evaluating cash back cards, however, can be a bit tricky. You’ll see cards advertised as 1%, 2% or even 5% cash back. Keep in mind, however, that these percentages do not apply all purchases. For example, some cards offer 5% cash back, but only on certain categories of purchases. The categories that qualify for the 5% reward change every three months, corresponding with the season. In the summer, for example, the 5% categories include travel and vacations.

Likewise, the percentage of cash back often varies depending on the amount a cardholder charges to the card. In some cases, the percentages increase as more purchases are made with the card. In other cases, the percentages level off or even go down once a certain spending limit is reached.

If you do decide to go with a travel or other rewards card, the next consideration are sign-up deals.

3. Sign-up Deals: Many credit cards come with special offers for new card members. Finding all of these deals can be a bit of a chore, but fortunately Ryan has done all the work for you. You can check out his credit card referral bonuses page for current deals.

One thing to keep in mind, however, is that a sign-up deal is a one-shot benefit. While such bonuses may be enough to sway you to one card or another, they shouldn’t drive the decision in most instances.

4. Introductory Interest Rates: Although becoming harder and harder to find, there are still available credit card offers with introductory interest rates. These usually fall into two categories: balance transfers and purchases. Cards with introductory rates typically offer 0% interest on balance transfers, purchases, or both for 6 to 12 months. While these teaser rates can represent a big savings, there are a couple of important considerations to keep in mind.

First, balance transfers today almost universally charge a transfer fee equal to 3% of the amount transferred. For a 12-month balance transfer offer, the 3% fee still presents a reasonable deal. At 6 months, however, the offer becomes less appealing.

In contrast, there are no fees associated with 0% offers on purchases. Why? Because with purchases, the credit card companies still make a transaction fee from the retailer. As a result, they don’t need to charge cardholders a fee like they do with balance transfers. Still, care should be given to the amount of purchases made with a 0 APR offer. These offers can cause folks to spend more than they otherwise would, which is never a smart money decision.

5. Annual and other fees: Every credit card charges fees of some kind. Some of the cards, particularly American Express and many travel reward cards, charge an annual fee. Whether the fee is worth paying depends on why you want the card. Some of the best travel rewards cards charge a fee, but the rewards make the card worth the price of admission.

Apart from annual fees, cards charge a variety of other fees. These include over the limit fees, late payment fees, balance transfer fees, and cash advance fees. The credit card legislation that recently passed the Senate would curtail some of these fees, but it doesn’t eliminate them. For the major card issuers, the fees charged are generally the same from card to card. Still, the fees should be considered before making a decision, and these can be found in the Schumer Box.

This guest post comes from DR, the blogger behind The Dough Roller, a blog focused on sound money management. His blog covers a wide variety of money management topics including tips on how to make more money, spend less, and invest the rest. If you like this article, please consider subscribing to his blog.


Published or updated January 9, 2014.
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{ 4 comments… read them below or add one }

1 DDFD at DivorcedDadFrugalDad

Two words: Caveat Emptor!

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2 Ryan

I have no problem with credit cards as long as they are paid on time. I enjoy the cash back. :)

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3 Dough Roller

We’ve been using our Discover More Card religiously for the cash back. We not only pay it off each month, we make multiple payments so that we don’t get too comfortable with the cash sitting in our checking account.

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4 Ryan

My wife has the Discover More Card, which we like. I’ve been using the Chase Freedom(SM) Card, which has some nice rewards.

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