Types Of Credit Cards
Before reading about the different types of credit cards, you should know about interest free periods.
Interest free periods are offered on most credit cards. They are usually a set number of days where you will be free from interest charges, for example 55 days interest free, this means that from the time you purchase something on your credit card you have 55 days to pay it back without being charged interest.
A very important point to remember is that the interest free period does not apply to cash advances!
Now that is out of the way, read on to find out which credit card could be suited to you.
Low Interest Rate Credit Cards
These types of credit cards have a low interest rate compared to the other two types of cards. This usually means there will be an annual fee and no rewards programs offered. A low rate credit card is good for people who know they won't be able to pay off their balance every month within the interest free period, therefore getting charged interest.
If you are going to get charged interest then of course you will want to get the lowest interest rate possible, hence why a low rate card would a good choice for you if you find yourself in this category of spenders.
Also keep in mind that just because the credit card seems to have a low interest rate, this would only usually apply to purchases, the interest rate for cash advances will still be high, so be wary of this when you compare credit cards.
No Annual Fee Credit Cards
Credit cards with no annual fee are a good choice for people that will be paying off their balance every month, within the interest free period, avoiding the interest charges.
If you know that you will do this then you don't have to worry too much about the interest rate, the only thing you should be worried about is the annual fee (as well as other fees, but these come with most cards). There are many cards out there with no annual fee. Shopping around will allow you to find the card that meets your individual needs.
Once you lock in the credit cards with no fee, another thing to look for is the interest free period, the longer the better, and any other fees and charges, such as transaction fees or late fees etc.
Rewards Credit Cards
Credit cards with rewards programs attached are the favourite choice for many consumers, but most of them don't realise that they actually aren't getting any value out of the programs. In order to really gain any benefits from these cards, you have to be a big spender, and a smart spender. This is due to the fact that nearly all rewards cards have higher interest rates and higher annual fees.
The higher interest rate means that you have to be a very smart spender and pay off your balance within the set interest free period otherwise whatever points you may earn will give you no benefits compared to the extra interest charges you will be paying on this type of card over a low interest card.
Another important thing to be careful of with these types of cards is the temptation to overspend just to get extra points. Again the points aren't always as good as you think and most of the time it would work out cheaper to just simply buy whatever you're saving your points up for instead of trying to spend big on items you don't really need just to get the points and a 'free reward'.
Which Credit Card Should I Choose?
Overall the credit card most suitable for you depends on your spending habits.
If you know you will be paying off your balance every month within the interest free period, then a no annual fee credit card or a rewards credit card a good option. Then look at how much you are going to be spending, if it's a lot, then consider a rewards credit card, if it isn't a lot then you could potentially choose a no annual fee credit card.
On the other hand, if you know you might not always be able to pay off your full balance every month within the interest free period, then an option is to choose a low interest rate credit card, this could save you the money in the long run.