There is no denying that credit cards are an extremely convenient way of making purchases, especially when shopping online. But if you’re thinking about getting a new credit card, then you might find yourself confused by the dizzying array of different types of cards that are now available for you to choose from.
Many people don’t take the time to consider their options, and so don’t end up with the right card for their lifestyle and spending habits. One of your first considerations should be whether you want something with low interest rates or something that comes with a reward program. In order to make the right choice, there are a few things you need to know first.
How Credit Cards Work
Most people have a general idea of how credit cards work, but it is a good idea to brush up on some basics before signing up for one.
When you use a credit card you are essentially borrowing money with the promise that you will pay it off come next payment cycle. If you cannot pay off the full amount of all the transactions listed on your bill, then you will begin to accumulate interest and risk going into debt. This is the main reason why many people choose to go with credit cards that charge low interest rates.
Low Rate Credit Cards
Low rate credit cards do exactly as the name suggests – they charge much lower interest rates on your outstanding balance than other cards. Sometimes this low initial interest rate will be fixed, but often it is only offered for a limited amount of time, possible only for six to nine months. Make sure that you read the fine print before choosing a low interest card.
Credit cards that come with rewards program will offer you various incentives for spending. They usually give either cash back on purchases that you make, or points which can be traded in for airfare, hotel stays, gift certificates, car rentals, or a variety of other rewards.
Which One Should You Choose?
Low interest rate credit cards are a good choice if you need to make a very large purchase that will take several months for you to pay off. You will accumulate at least some interest, but, if you made good financial plans ahead of time, you should eventually be able to pay it off in full. Low rate cards are also best for people who may have a hard time paying off their full balance every month. Be warned, however, that your low rate may jump up to a higher rate after only one missed payment.
If, however, you have no problem paying off your full balance every month, then your card’s interest rate is largely unimportant and a rewards card is the better way to go. However, these cards also tend to come with high annual fees and a variety of restrictions, so make sure that you understand your offer before you go out and start spending.