The credit card industry tends to divide customers into two main groups: “transactors,” who use credit cards to earn rewards on their purchases and pay their bill in full each month, and “revolvers,” who tend to carry a balance month to month.
Which category you fall in determines which card is best for you.
For transactors, putting more money in your pocket is most important. For revolvers, keeping more of your money from leaving your pocket is key.
It’s important to remember that no one card serves both types of customers. Very few cards offer both excellent rewards and low interest rates and fees.
Today, we’ll look at how to pick a credit card if you pay it off every month.
Here are three factors transactors should consider when choosing a card:
Cash, miles or points? What kinds of rewards do you want? There are lots of cards that offer excellent cash rewards without an annual fee, including ones from Discover and Capital One. There are also dozens of no-fee cards that reward you in airline miles or points.
Fee or no fee? If you’re like me, you simply never want to pay an annual fee. But sometimes that can be short-sighted.
Cards with annual fees generally — but not always — pay greater rewards, so the fee can be well worth it. For example, the American Express Blue Cash Preferred card carries a $75 annual fee, but if you spend $6,000 a year on groceries and another $1,700 on gas — not unusual sums for a family of four — you would earn more than $400 in cash back.
Bottom line: If you’re going to pay an annual fee, make sure the rewards you get far exceed the fee, preferably many times over.
Don’t worry about the APR. If you never revolve a balance, you shouldn’t have to worry about the interest rate.
Remember, though, if you fail to pay in full, one month’s interest could wipe out several months of rewards. If you’re late, not only will you be socked with a late payment penalty, but you might also forfeit all the rewards you’ve already earned.
Ready? Start your hunt for a new card in our database of credit card offers, where you’ll find top cash-back and rewards cards.