How to find and use the best credit cards
For most financial institutions, extending credit (and collecting interest from the credit card holders) represents a significant portion of their income. Their objective is to develop products that will maximize their profit.
Your objective, on the other hand, should be to use the credit they offer to maximize benefits for you. Here are some suggestions.
First, make every effort to pay down your outstanding credit card balances to reduce interest charges — and eventually carry no balance and avoid all interest charges. Use money from savings accounts earning low interest to reduce your outstanding credit card balances, which probably charge you considerably higher interest.
Keep in mind that if you do not pay your credit card balance in full each month, it is likely that you are incurring interest charges as soon as you purchase something.
If you are unable to pay your balance on any card in full at the end of the month, use a different credit card (with no annual fee) for new purchases, and pay the bill in full at the end of the month. This way you will not incur additional interest costs.
Take advantage of rewards
Rewards cards can be another way to take maximum advantage of credit. What’s best for you will depend on your spending habits. There are several no-fee credit cards (some of which I list below) that provide significant cash or statement credits, and no interest charges as long as you pay your balance in full.
Target’s REDcard offers a 5 percent immediate credit on all Target purchases, and offers very good prices, especially on grocery items. [Editor’s note: Target’s recent problems with hackers’ theft of shoppers’ private information might be a concern. But presumably they’re on their guard now.]
Chase Freedom Visa changes its promotions every three months, selecting a few categories to pay back 5 percent cash or credit, and offering 1 percent back for all other purchases. For example, during the first three months of 2014, there is a 5 percent credit for gas stations, movies and Starbucks. New cardholders will receive a $200 bonus for spending $500 in the first three months.
If you have an account with Fidelity, the Fidelity Rewards American Express Card offers a 2 percent credit for all purchases.
The Capital One QuicksilverCash Rewards (Visa) card offers 1.5 percent cash or credit for all purchases, with a $100 bonus for spending $500 in the first three months.
The Blue Cash American Express Card offers a 3 percent credit for supermarket purchases (up to $6,000 per year), 2 percent for gas, and 1 percent for all others, with a $50 credit if you spend $1,000 in the first three months.
The bottom line is that you can use multiple cards and receive at least a 1.5 percent discount for all purchases if you are selective. There is no downside in using multiple cards if you pay your balance each month.
Cards for medical bills
Another way to use credit cards to your advantage is paying for medical expenses. Some credit cards available for medical expenses have received poor press lately.
My experience with CareCredit has been very good. I use it whenever I have major expenses, because as long as I pay the bill within the designated period (sometimes 12 months, sometimes 18 months), it is interest-free. It is crucial to pay your balances in full by the deadline; otherwise, interest will be charged for the whole period at high interest rates.
It is also very useful to have a line of credit available. One option, if you own your home, is a home equity line of credit. I rarely use mine, but there was no fee for opening it, and the interest rate is quite low.
I incur no interest expenses or any other costs unless I use it. It has helped me avoid paying the much higher interest on my CareCredit card: I have used my line of credit periodically to pay off my CareCredit medical bills by the deadline.
Lenders, especially credit card issuers, earn significant income when consumers do not pay their full balance. If you pay in full each month, credit cards can be very useful. Unfortunately, about 50 percent of consumers always carry a balance.
As a court mediator, every week I see the unfortunate result of lawsuits initiated because consumers are unable to make even minimum payments. Use credit wisely. It’s too easy to pay only the minimum each month, and find your balances out of control.
©2014 Elliot Raphaelson. Distributed by Tribune Content Agency, LLC.