Rules of thumb:
If you don’t run a balance, then maximize the points you’re getting.
If you do keep a balance on your credit card, then minimize the interest rate you’re paying.
What’s the point of a credit card?
How to maximize rewards: Look for cards with high sign-up bonuses and good long-term point value. 1 point per dollar spent (e.g., 1% back) is the baseline. Getting 2% back or 2x points is quite good. Remember that you’ll need a good credit score to get these higher point values.
Be skeptical of merchant categories or rotating categories – you may overestimate how much you will actually spend at those stores.
Where do points come from? Credit card companies make money in two big ways. First, they charge merchants a percentage of every purchase. When you swipe at a coffee shop, the coffee shop has to pay a small percentage to the credit card company. Second, credit cards charge interest if you run a balance. That interest can add up!
How to minimize interest payments: Some cards, called “balance transfer cards,” allow you to move the amount you owe on another card onto this new balance transfer card. Watch out for the transfer fee — usually 3%, but some cards offer a lower fee. Then you’ll get a 0% interest rate for a promotional period — anywhere from 9 to 21 months. Hopefully this will give you time to pay it off!
Here are three more things to remember.
- Getting the best possible credit card is a smart financial move — but it’s smarter to make sure your finances are in order first.
- Do your best to avoid running a credit card balance. Those interest rates are really high.
- If you do run a balance on your card, look into balance transfer options — these could save you a ton.
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