Credit cards can be useful for emergencies when cash is tight, and they’re also very convenient to have around—in some cases, too convenient. However, they most certainly do have their uses.
In many cases, having the right type of credit card for your situation can be highly beneficial if used properly. Here, we’ll discuss how to choose a credit card for your lifestyle.
Reasons To Get A New Credit Card
There are several reasons why someone would want a new credit card (beyond the convenience it provides). Your purpose in obtaining one will determine which type you get.
Some of the most common reasons to get a new card include:
- Emergency usage
- Rebuilding credit
- Consolidating debt
- Reducing interest
- Earning rewards
- Facilitating travel
Your lifestyle and goals will inform the type you’ll choose.
How To Choose A Credit Card For Your Needs
Different types of credit cards offer their own benefits. The types of advantages you want will depend on your current situation, desires, and goals. Ultimately, it comes down to your purpose in getting a credit card.
Sometimes, you don’t have the funds on hand to make important purchases. A credit card can be useful in that sense since it allows you to bridge the gaps between paychecks without the exorbitantly high rates of payday loans or the requirements of personal loans.
Typically, if your motive for getting a credit card is to have it around strictly for emergencies, you won’t often carry a balance. As such, the benefits and interest rates aren’t really all that important, though favorable rates and added perks can be a big plus.
- Are looking for a way to handle financial emergencies, AND
- Don’t foresee carrying a balance over month to month
...then you likely belong in this category.
Another use of credit cards is to rebuild credit. Your credit score reflects how trustworthy you are with meeting financial obligations, such as paying bills on time—including credit card bills. If you can pay off your balance consistently, that will get reported to credit bureaus, which will then (eventually) be reflected in your credit score.
As such, making purchases with a credit card can be a good way to rebuild a subpar credit score, but only if you use it wisely.
- Have less than ideal credit, AND
- Are confident that you’ll pay off your balance every month, AND
- Want to someday secure financing for a house, car, or other large purchase
...then getting a card to rebuild credit may be for you.
Some credit cards can be used to consolidate debt via balance transfer, particularly those that offer 0% APR introductory rates. Those rates only last for a short while, but they can allow you to put a large dent in your current debts while temporarily eliminating interest.
Essentially, you’ll use the new card to pay off all of your current debts, consolidating them into one monthly payment. This only works if you’re able to make regular payments, however, and you do need to be financially responsible enough (i.e. have good enough credit) to qualify for those introductory rates.
- Have multiple high-interest debts to pay off, AND
- Have good credit, AND
- Can make regular payments
...then you might be able to consolidate debt with a balance transfer credit card.
Sometimes, those who regularly carry a balance on their credit card but are otherwise financially responsible can benefit from reducing their interest rates. Transferring over to a lower-interest card can be a great benefit to those who regularly put purchases on credit.
- Tend to carry a balance on your card, AND
- Have good enough credit to qualify for better rates
...then you’ll likely benefit from switching to a card with a lower rate.
Beyond the financial health aspects of credit cards, many options offer cash-back rewards on certain purchases. All kinds of offers are available—it’s just a matter of narrowing it down to one or two that can be useful for you.
Using rewards cards can get you extra cash on purchases that you’d make anyway. Often, rewards come straight from credit card companies, but they are also frequently offered at retailers. Just note that these types of cards may carry higher interest rates, so you’ll want to pay them off promptly.
- Regularly make purchases that are covered by certain rewards cards, AND
- Are unlikely to carry a balance
...then a rewards card may be right for you.
One final use of credit cards is to earn airline miles, which is naturally beneficial for people who frequently travel. For every dollar you spend with the card, you’ll earn points (sometimes extra for qualifying purchases). In addition, you’ll get added benefits, such as extra value when redeeming points for certain travel-related purchases.
The key with this type of card is to make sure you use it responsibly to avoid offsetting those miles with extra debt and interest.
- Travel frequently, AND
- Tend to put purchases on credit, AND
- Use credit cards responsibly
...then a travel rewards card can certainly benefit you.
Evaluate Your Financial Situation
When determining how to choose a credit card, it’s important to evaluate your situation carefully. Answer the following questions:
- Is my credit good enough to qualify for lower rates?
- Do I have high-interest debt to manage?
- Do I use credit responsibly?
- Do I usually carry a balance from month to month?
- Do I frequently make purchases covered by rewards cards?
- Do I need a lower rate?
- Would I travel more frequently if I could?
The answers to these questions will help you determine which credit card is best for you.