Why You Might Have the Wrong Credit Card

If used correctly, a credit card in the right hands can be a very effective personal finance tool and you can take advantage of many different credit card types. For example, big spenders can benefit from generous rewards cards, whereas those trying to pay off debt can capitalize on low credit card interest rates. With that said, you should really only apply for credit card offers that are relevant to your individual strategy.

For example, if you’re already trying to pay off debt, getting a rewards card that entices you to spend more money definitely isn’t a good idea. It doesn’t matter if they’re offering 5% cash back for every dollar you spend because you shouldn’t be spending in the first place.

Finding the Perfect Credit Card For You

What most people need to understand is credit card companies design special promotions and bonuses in their products to entice different customers. It’s their job to make them all sound good. What you need to focus on is what sounds good (and is good) specifically for you.  Cardholders aren’t all the same. Establish what kind of credit card user you are and how you plan to use plastic in your financial strategy. Once you understand what you actually want the credit card for, finding one that suits your needs is easy.

Types of Credit Cards

Depending on your spending habits and your financial goals, having one or more of these types of perks on your credit card can really make a difference in how you maximize your dollar. While they all may be great to have, some don’t necessarily apply to your needs.

  • Rewards Cards: These types of cards are great for disciplined spenders. You can accrue points to be redeemed for cash, merchandise or airline miles. But even with these cards, there are certain drawbacks to understand. If you’re not a traveler, having a rewards card for airline miles doesn’t make a lot of sense. Another thing to keep in mind is if your expenses don’t fall into specific categories that most rewards cards have, it defeats the purpose of using said card.
  • Low APR Cards: Many banks usually offer low credit card rates to attract new customers. They’re great if you tend to carry a balance (something you shouldn’t do if you can help it) or need to transfer existing debt to pay off a card with a high APR. If you’re someone who consistently pays off their balance every month, your strategy doesn’t really take advantage of having this perk.
  • Annual Fee Cards: While there are many cards on the market that have no annual fees, some do and the reasons for why may vary. Perhaps you have bad credit or your card may provide more services and rewards than free ones. For some people, the fee may be worth it. For others, like those that rarely use their cards, you’re basically throwing money away.
  • Cards for Bad Credit: Secured and prepaid credit cards have become increasingly popular for many consumers, but they really aren’t a good idea unless you have horrible credit or don’t like having a bank account. Prepaid cards have high fees and charge them frequently. While some people use these cards to help them rebuild credit, you have to be careful because not all cards report to the three credit bureaus.

Help Credit Cards Help You

It’s important to always remember you’re the one using the plastic–don’t let the plastic use you. Many times, consumers with the wrong type of card feel obligated to take advantage of bonuses and features just because they’re available.

This creates situations in which you may spend money you had no intention of spending just to get those extra rewards points. Or perhaps you talk yourself into not paying off that full balance just to take advantage of a 0% APR introductory rate. It sounds illogical, but it happens.  Just like with anything in personal finance, it all comes down to developing your own strategy and sticking with it.

This guest post was written by Henry Truc from Go Banking Rates, a website that brings you informative personal finance content and helpful tools, as well as the best interest rates on financial services nationwide. Follow them on Twitter at @GoBankingRates.

Published or Updated: February 13, 2011

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