Which type of Credit Card is best for Me?: Part II

Zero or Low-Interest Cards

Credit cards that offer 2%, 1%, or even 0% interest rates usually do so for a certain amount of time known as an introductory period. Generally for six months, nine months or one year the interest rate remains low, after which time it increases to the regular rate.

Instead of applying to all new purchases, however, many such credit cards actually apply the low interest rate only to balance transfers, or debt that is transferred from one credit card to the new card. Balance transfers help some people to relieve themselves of debt by exchanging a high interest rate for one that is much lower. This allows for lower monthly payments, and may make it possible to get out of debt more quickly.

If you would like to transfer your credit card balance to a new card, then a zero or low-interest card is exactly what you will want to seek out. To secure the low advertised interest rate, you generally have to show a history of good credit.

Of course, balance transfers only work if you realistically can pay off your balance within the introductory period of the card. If you cannot, then you may end up with an even higher interest rate than you had originally.

Many low-interest credit card offers have balance transfer fees, annual fees and other fees attached, so make sure beforehand that the money you stand to save is worth the balance transfer. Also, if you make even one late payment on your new card, then your interest rate probably will rise dramatically. Such cards are best for individuals who are certain that they can pay on time consistently.

Reward Cards

Reward cards do exactly what you would expect them to do – you are rewarded by using them. Generally the more you make purchases with your card, the more rewards you receive.

Typical rewards include cash back on your purchases, airline miles, store discounts, and “points” that you can use toward purchases such as gas, entertainment, or other merchandise.

Reward credit cards really can be rewarding, but make sure that you understand exactly how a particular card works before signing up. Some cards have confusing or inconvenient redemption policies. Because reward cards are relatively expensive for lenders, some also come with very high interest rates and/or fees that might not make them “worth it” for you.

Reward cards work best for individuals who pay for the majority of items and services with a credit card, and who consistently pay off their balances each month. If you already use a credit card heavily for convenience purposes, then why not use a card that will give something in return?

Secured Cards

Secured credit cards are very similar to the “regular” credit cards with which you are familiar, but with one distinct difference. Secured cards require that you make an initial deposit to your lender before credit is extended to you.

This fee, usually about $200 or $250, is meant to protect the lender against the risk of lending. Also to protect the lender, secured cards often come with high interest rates and annual fees attached.

Secured cards are great options (and sometimes one of very few options) for individuals who have histories of poor credit. They are specifically designed for borrowers who might not be able to obtain unsecured credit cards. As a bonus, they can help borrowers to repair their credit through making reliable, on time payments.

Other Cards

The following types of cards are not technically credit cards, but they work very similarly. In most cases, they are accepted wherever credit cards are accepted.

Prepaid Credit Cards With a prepaid card, you determine your credit limit by depositing the chosen sum of money to your lender. Very similar to debit cards, prepaid credit cards help protect against debt by providing you only with as much available money as you actually have. There may be monthly maintenance fees, start-up fees, overdraft fees, and/or application fees associated with your card.

Debit Cards Debit cards are connected directly with your bank account. When you make a purchase with your card, the money is automatically deducted from your account. Just as with prepaid credit cards, debit cards help you to protect yourself against incurring unmanageable debt.

Charge Cards Also known as travel and entertainment cards, charge cards include American Express and Diners Club. Generally, such cards do not have attached credit limits. Their repayment usually is required in full at the time that you receive your bill.

Go to Part I of this article.