How to Pick the Perfect Credit Card

With banks fiercely competing for your business, you can choose the best credit card to help you get out of debt or to earn rewards – but not both.

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I’ve written hundreds of articles about credit cards, but I still cringe when I think about the time in college when I applied for a card to get a free T-shirt.

In those pre-Internet days, there was little information that was easily accessible about credit cards, other than printed advertisements. Today, there’s so much information about credit cards – from Money Talks News and other sources – that credit card users no longer have an excuse for choosing a credit card on a whim. I’m very careful about which cards I apply for and use, which allows me to pay very little in fees while earning tremendous rewards.

What kind of credit card user are you?

To pick the best card for your needs, you have to know what type of credit card user you are. According to a groundbreaking documentary from PBS and the New York Times, banks put cardholders into one of two groups: “deadbeats” or “revolvers.”

Contrary to what the name implies, “deadbeats” are actually the customers who pay their balance in full each month, owe no interest, and are unwilling to pay many fees. “Revolvers” tend to carry a balance and pay interest every month, which makes them more profitable, and thus more desirable.

The type of credit card user you are is the most important factor when choosing a card.

Cards for revolvers

If you tend to carry a balance each month, your goal should be to pay off your debt as soon as possible. One thing that will help? Getting a card offering the lowest interest rates. A low APR (annual percentage rate) can come in the form of an ultra-low or 0-percent promotional rate, a competitive standard rate, or both.

For example, many cards feature a 0-percent introductory financing period for as long as 21 months. This rate may apply to balance transfers, new purchases, or both. When considering a balance transfer rate, always consider the balance transfer fee as well, which will typically be 3 to 5 percent of the amount transferred.

The products with the lowest interest rates will rarely offer any rewards. That’s just as well, since those carrying a balance should disregard reward cards – because the value of the rewards earned will only add up to a fraction of the interest paid. Finally, consider all fees. The best low-interest-rate cards with no reward programs don’t have an annual fee.

Cards for deadbeats

First, congratulate yourself for always paying your balance in full and on time! This achievement entitles you to use credit cards not just as a method of payment, but as a means to earn valuable rewards – so long as you never find yourself spending more to earn them.

Whether you’re considering a card that will earn cash back, points, or miles, you need to quickly determine the value returned per dollar spent. The best cash-back cards will return 2 cents in value per dollar spent, so if you choose to earn loyalty points or miles, make sure the value of the awards earned exceeds 2 percent of what you’re spending.

When it comes to annual fees, remember that lower is not always better. For example, Southwest Airlines offers two different cards, yet the one with the $99 annual fee gives customers $99 worth of Southwest points each year, while the one with the $69 annual fee returns $50 in credits.

Finally, don’t count out the prospect of a generous sign-up bonus. For instance, British Airways offered their card at one point this year with a 100,000-mile bonus, enough for an award ticket to Europe in business class. Before jumping on one of these offers, just make sure that you read the terms and conditions thoroughly and are comfortably able to meet any minimum spending requirements to receive the bonus.

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