Choosing Your Credit Card

Why?

Many people like me or unlike me have credit cards because it is just so simple to carry one with you and not have to worry about carrying change, bills, other payment methods. Since it is so widely used, vendors often have a machine that allows this convenience to all customers as well as being more attractive to the customers since payment through a card is much faster. To the customer, credit cards offer a safe, convenient, wallet or purse decluttering, and “10-second it’s done” form of payment in which you can tap or input your pin number. To the vendor, because more and more customers are using it for the convenience as well as it being a good record keeping device, they are pressured into adopting this technology into their business.

Costs

The costs for credit cards tend to vary from company but a few things remain consistent – Annual fee, Interest rate, Miscellaneous fees. The annual fee is simple in that you pay a single fee normally at the start of the year to use that card. This can be costly but the rewards can be quite impressive and ultimately depends on how much you spend yearly. If I spend over $5000 a year on a 3% cashback credit card that has a $100 annual fee, you would mathematically get a $150 cashback to offset the annual fee and thus net gains of $50. The same cannot be said if I spent only $3000 a year where I would only get $90 cashback resulting in net losses of $10. But there might be other perks such as discounts that is subjected to how you interpret its value. This also means that if you get discounts at a fast food restaurant, but you don’t eat fast food then there is no value to you.

Interest rate is in regards to how much you are in paying the late fees or how much you “withdrew” from your credit card as cash for payment. It is pretty straightforward in that it is basically the same principle as borrower and lender where you pay an interest for borrowing the money. If you don’t use money withdrawn from a credit card and pay your bills on time, this will not be a financial hindrance to you.

Miscellaneous fees are fees are fees that cannot be categorized as there can be any number of fees attached to your card. One of them is a balance transfer fee where you put the balance of one of your credit cards onto another. Another would be foreign transaction fees for where you made purchases in a foreign currency. Some cards might also charge for sending you a paper bill to your address.

*Keynote1: to break-even the cost of a $100 annual fee, make sure your annual spending (i.e. $4000) and cashback rate (i.e. 2.5%) are equivalent or higher (i.e. $100 PHEW!!)

*Keynote2: to minimize your expenses and maximize the value of your card, one must always pay the bills on-time, do not withdraw from the card, try to have a low annual fee, remove paper bill, and be diligent about your spending habits.

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