Which Type of Credit Card is Right for You?
Posted on January 25, 2013 by Michael Martin Leaño
People have different financial needs. Some have great credit, others don’t, while others spend more regardless. Because of these varying needs, people would also need different types of credit cards that fit their finances. Below are the different types of credit cards and the kinds of customers that would benefit from them.
Type #1: Low-interest credit cards
You’ve read from finance gurus that you should try to pay off your credit card balance every month, but if you find this easier said than done, then you should get a low-interest credit card. That way, you pay as little interest as possible, while still enjoying the conveniences and security of a credit card. You won’t enjoy interest-free days if you don’t pay off everything monthly, but with a smaller interest rate, more of your payments go toward your balance.
Type #2: Cash back credit cards
These types of credit cards can entice pretty much anyone who appreciates getting part of their money back. Cash back cards provide rebates worth 1 to 5 per cent of all your purchases. So if you spent $12,000 for an entire year using your cash back credit card, which offers a 1 per cent rebate, then you’d get a cheque worth $120.
To maximise this cash back card, you’ll have to use it for most—if not all your expenses. However, if you use credit cards only when you have to (e.g. shopping online) or if you have poor credit, then this card isn’t for you.
Type #3: Secured credit cards
Credit cards are generally a form of unsecured debt, meaning you don’t have to guarantee collateral to use it. However, there is an exception: secured credit cards require a cash deposit, which serves as your guarantee. It may be a hassle to use, but if you have poor credit, secured cards are a great way to increase your credit score, as long as you pay on time.
Type #4: Airline miles credit cards
Airline miles cards reward you with points or airline miles whenever you use it. Once you earn enough airline miles, you can redeem them and take free round-trip flights. If you’re a frequent air traveller or plan to travel frequently, then you should get an airline miles credit card. Its yearly fee is expensive, but your free trips will easily offset this. However, if you seldom travel, don’t bother. It takes a lot of money to accumulate enough miles and get a free flight.
Type #5: Balance transfer credit cards
Want to get rid of your sizable credit card debt and save some money in the process? Then consider getting a balance transfer credit card, some of which offer an introductory rate of zero per cent for the first six to 12 months after transferring your balance. If you settle your debt during this period, you only spend for the amount of your purchases, without the interest. Without credit card debt, this card is useless, so get one only if you need it.
Type #6: Fuel rewards credit cards
Petrol can be expensive, especially if you drive to work every day or drive an SUV. If you need to purchase petrol frequently, then a fuel rewards card should be perfect for you, because it provides rebates that typically range from 3 to 5 per cent. Of course, if you don’t own a car, work from home, or drive a fuel-efficient hybrid, then you won’t need a fuel rewards card.