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Choosing a Card

Is it a convenience?
Many consumers choose to pay their credit cards in full each month. They use credit cards as a convenient way to track their spending and to make purchases without using cash or checks.

For these card users, the interest rate on a credit card may matter less than the size of the annual fee and the rebates they can earn when they use the card. Cardholders who pay the balance in full each month might want to consider a co-branded card. These cards may have relatively high interest rates, but if you pay your bill in full, these rates may not affect you. These cards also provide such extras as rebates, cash rewards, and free or discounted merchandise. But be aware that the extras may not last the lifetime of the card.

Think a rebate card might work for you? Read the offers thoroughly to find out how much you have to charge to earn rebates. If you don't think you will charge enough within the specified time to collect rewards, the higher interest rate and annual fee might not be worth it. Also, check whether the company charges interest from the date of the transaction. If so, those high rates may cause you to pay interest on this type of card, even if you pay your balance in full every month.

Do you plan ahead?
You're planning to redecorate, and you spot exactly the furniture you want on sale for hundreds of dollars less than you thought you'd have to pay. You've been having a good year, and you'll be getting your annual performance bonus in a few months. Your plan: charge the furniture to your credit card, pay what you can afford each month until bonus time, then pay off the entire amount.

It's a good plan if: (1) you're sure the bonus will come; (2) you limit your spending to the amount of the bonus (don't treat it like an endless supply of money); (3) you've found a card with a credit limit high enough to accommodate the purchase and with a reasonable interest rate over the period of time you'll need to pay off the balance.

Using a card offering a low introductory rate can be one choice for financing large purchases over a short time if you are certain you will pay off the balance and are comfortable with the terms. Opening a credit account with the furniture store is another option, but credit cards issued by financial institutions usually have lower rates than store cards.

Do you plan to maintain a balance?
Many credit card users regularly maintain a balance on their cards. Most card users always pay more than the minimum and they shop for the card with the lowest rate in order to minimize the amount of interest to be paid every month. Shopping for the lowest interest rate is generally a good strategy for users who expect to carry a balance from month to month. The exception: if your average balance is less than $1,000, a hefty annual fee on a low-interest-rate card could negate the low interest rate. If you plan to keep your balance small, look for a no-annual-fee card with the lowest interest rate you can find.

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