Next time you’re shopping for a new credit card, check your mailbox. Direct mail solicitations from creditors are up this year, according to the market research company Mintel. And to entice customers, companies are offering everything from cash back to bonus miles to zero percent balance transfers.
So how can you tell which cards are worth a second look? And which belong with the junk mail?
“Really it begins with the question of, are you going to carry a balance or are you not going to carry a balance,” says Ron Lieber, Your Money columnist for the New York Times.
“I would always tell people not to carry a balance. Paying credit card interest tends to be expensive. That being said, there are some people who have no choice,” Lieber says. “It’s the best of all bad options because they lose their job, they get into a serious situation with medical expenses or they’ve just accidentally gotten themselves in over their heads and now they’re setting themselves straight.”
In that case, it’s important to look at interest rates, says Lieber. Then there’s the APR, the terms of the card and how long the opening offer lasts.
“It used to be the case that if you had some debt and you wanted to carry it out, string it out for a while, you could get this zero percent interest for 12 months offer — sometimes for even longer than that. And you could just keep moving your balance from one card to another, while sort of slowly trying to pay it back and pay it down. And then when the period was up, you would just move it to another card. That became harder for a while,” according to Lieber. But now, he says, “we’re starting to see those offers again.”
For those who aren’t planning to carry a balance — and don’t have to worry as much about interest rates — the amount of credit card reward programs out there can seem dizzying.
But there are basically three different kinds to choose from, according to Lieber — cash-back, travel rewards and proprietary points systems given away by card-issuers. “What you have to do is take kind of a hard look at both how complicated those systems are and how likely you are to sort of forget about the points or not be able to use them, but also how valuable they are,” Lieber says.
You also have to remember that there’s no such thing as a free money. There’s a reason card company’s offer these rewards systems.
“The more you spend in pursuit of these rewards, the more likely you are to get in debt,” says Lieber. “Once you’re in debt, you’ll be paying 12 or 18 or 20 percent a year and then the credit card companies win.”
And even for those people who never carry a debt, Lieber says “the card companies are hoping that they will spend more than they might have otherwise, because it’s a credit card, because they don’t have to pay it off for 30 to 40 days, and because they get these points and they think, ‘well, you know, at least I’m getting the miles if I’m going on this shopping spree.'”
But that’s exactly what the card companies want you think, warns Lieber: “The object of the game is to be as unprofitable of a customer as you possibly can, to never carry a balance, but to get all of the rewards for spending you would otherwise do but not spend more than you necessarily should, just in pursuit of those miles.”
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