Just about everywhere you go today someone is offering you a credit card. From your favorite stores, hotels, airlines to gas stations and even amusement parks. Not to mention the countless celebrity-plagued commercials on tv promising the most cash-back or highest reward points.
So how do you know which credit card is best for you?
Be Honest with Yourself
First, above all else, you have to be honest with yourself in how you use your credit card. Most people say they will get a rewards card, despite the high-interest rate, because they plan to pay it off each month. That way, they rack up rewards without ever paying interest.
The result: Few people are actually able to do this. Life happens. You have to carry a balance as a result of unexpected expenses, an error in your budgeting or you just couldn’t resist that mini vacation. Look over your past credit card statements. How often did you pay your credit card balance in full each month? If not every month, it’s time to look for a better credit card.
Let’s Review Two Popular Options
Store Credit Cards
Credit cards offered by retailers are so common today because they play to two key elements: instant-gratification and confusion.
Instant-Gratification: You’re making a purchase and you’re told if you open a store credit card, you could save 20% off your entire purchase that day. Or maybe it’s $50 off. Whatever the offer, it’s designed to give you a perk up front. It’s very difficult for people to resist free money and these retailers know it.
Confusion: When you’re in a store, you’re often in line, people are waiting behind you, your kids are running around at your feet, etc. It’s a very distracting environment to say the least. When offered a store credit card, if you give in to the instant-gratification (i.e. discount), you definitely aren’t going to stop and read through a whole credit card agreement. You sign the application and get out of there – without even knowing what you just signed. And you often won’t even know your approved interest rate until your first statement arrives.
These two elements are what make store credit cards so common in wallets today. The truth is, these cards almost always have high-interest, often up to 29.99% APR. They may carry high annual fees, among other fees. Plus, you didn’t even stop to think how opening a new credit card might impact your credit score.
Rewards Credit Cards
The most popular credit cards today are rewards cards. These cards offer you reward points every time you use your credit card. These points are then able to be redeemed for cash, travel or gifts. Gaining in popularity are the cash-back credit cards; providing cash back for every purchase you make.
The question is: Do you know how much you pay for these rewards?
Rewards credit cards are designed so consumers believe they are getting something back for free. Since most people don’t actually add up all the interest and fees paid over the years of having the card, it appears as though they just got a free airline ticket or $50 gift card when they redeem their points. And that’s exactly how credit card companies want you to feel.
High-Interest: Most rewards credit cards carry much higher interest rates than normal, non-rewards credit cards. These rates are often seen as high as 29.99% APR! If you are unable to pay your credit card balance in full each month, you’ve already lost the rewards game. Plus, it’s pretty easy to give 1%, 3% or even 5% cash back on a credit card when you’re paying 29.99% APR.
Annual Fees: Many of the most popular rewards cards you see advertised forget to mention the Annual Fees. These are fees simply for having the card. And most consumers don’t notice the Annual Fee because it’s almost always waived the first year. But it’ll be a not-so-fun surprise when you open your statement a year later.
Annual Fees used to be $50 – $75 per year. Not so much anymore. Many of today’s rewards cards are bumping Annual Fees up to over $500 per year + $195 for each additional card on the account. That’s not so rewarding!
What Should You Do?
As popular as credit cards are today, the decision to open and use one should not be a spur of the moment act. Consumers need to research their options and know what card best-fits with their specific financial needs.
If you have enough cash to pay off your credit card in full each month, a rewards credit card could be a nice perk. But if you cannot pay off your balance in full each month, you should look for a low-interest rate card with no annual fees.
Credit cards are financial tools to help you when you need extra money or need to carry a balance on an unexpected purchase. They are not games. The average 2017 American household has nearly $8,000 in credit card debt. On average, American households are losing the rewards game. Be smart with your money and think of your long-term financial goals.
Get a Card You Can Trust
When choosing a credit card, it’s crucial you get a card from an institution you trust. Stores, airlines and similar businesses offering credit cards are looking for one thing – extra income. Don’t fall victim to their games.
At Tampa Postal, we’ve designed a credit card that has your best interests in mind. You’ll receive low, FIXED Rates, pay no annual fee – PLUS – you’ll still earn valuable rewards with every swipe. Be smart with your money – we’re here to help.
Stop by any branch location, give us a call at 813.264.4969 | 800.782.4899 or visit us online to learn more about our Platinum MasterCard.
This article is for educational purposes only. Each individual’s financial situation is unique and readers are encouraged to contact the Credit Union when seeking financial advice on the products and services discussed.