Credit Cards: The Good, The Bad, and The Ugly

August 16, 2016

For a lot of us, choosing a credit card is something we initially stumble into.  My first credit card was the one that my childhood bank suggested.  After I got married and began merging my finances with my husband, we decided to rethink our approach to credit and do some research into what the different cards had to offer.

 

In the world of personal finance, the words “credit card” have become synonymous with “danger” and “bad.”  Images of individuals cutting up their cards and raising their fist in the air as a symbol of their newfound freedom come to mind.  Personally, I believe in the mantra “everything in moderation.”  If you can’t handle spending in moderation and you routinely rack up tens of thousands of dollars on credit cards that you can’t pay off you should probably cut your cards up and do the fist pump.  If, however, you have a decent amount of self-discipline then credit cards really can be a good thing.  A lot of them offer cash back rewards programs or miles towards a free flight and those savings can add up.

 

When we started researching which card to get we read several different credit card blogs and ratings sites, but hands down the most helpful one, in my opinion, was Mint (you can find their credit card comparison page here).  Mint is also the site we use to budget, and I think they do a pretty good job of summarizing our information and offering us helpful ways to save money.  We currently carry two Capital One cards (this is not an endorsement, just a fact).  We chose the Quicksilver option because it was cheap and offered us cash back (my husband can get a little spreadsheet crazy and he found that the 1.5% back on everything saved us more money than the base 1% option with increased percentages on groceries, gas, etc.).  A lot of cards have an annual fee (our other card does) that can be worth it depending on how much you spend, but it means you have to do the math.  The Quicksilver card was our first grown-up card and we liked the idea that the card was free and we got cash back on pretty much all of our purchases.  Every few months our cash back rewards accumulated to the tune of $100, and we got a check in the mail.  Pretty nifty!

 

The second card we chose was Capital One’s Venture card although we are currently considering switching to the Southwest card because we fly Southwest often.  We added a second card because we travel a lot and wanted to get rewarded for that; however, I wouldn’t recommend going crazy and getting a wallet full of credit cards.  The more you have the harder it is to keep track of them all and before you know it you’ve missed a payment.

 

We looked at only two things when deciding on a card: annual fees and the rewards programs.  A lot of financial blogs will tell you that it’s important to consider the APR.  APR stands for Annual Percentage Rate and is the interest rate that you pay on any balances you carry on your credit card.  Often credit card companies will offer a lower initial APR to entice you to sign up that then gets bumped up the following year.  We ignored this number because we never carry a balance on our credit cards – we pay them off every month (often twice a month just to be safe).  Because credit cards are often used to purchase goods that don’t make you any additional money, the financially healthy way to use credit cards is to avoid carrying a balance.  If you can’t afford something right now in cash then you probably shouldn’t buy it.  Credit cards simply delay payment of something. You still have to pay, and the longer you delay payment the more you have to pay.  That’s why it’s best to only purchase things on your card to the extent that you can pay them off in a timely fashion. If you’re paying more in interest than you’re making in rewards it’s probably time to rethink having the card.

 

(This article was originally published June 21, 2016, on our sister site The Cupcake Club).

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