New Column: Money Management – The Smart Guide to Choosing the Right Credit Card

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Living Frugally with Credit Cards

Today is a very happy day for me. My husband, Mayank, joins the wonderful community of The Mom Writes and will be contributing a fortnightly column each month on money management, budgeting, and finance. Please extend a warm welcome to him, follow him on Twitter and send him your money-related questions at mailmayankmalik (at) gmail (dot) com.

Over to Mayank:

A credit card not only offers unmatched convenience while shopping it can also offer great benefits without getting into a debt trap. However, with the number of credit cards flooding the market, it is difficult to choose one that’ll be perfect for your lifestyle.  Here’s how to choose the best credit card for your family and yourself while living on a budget.

Deciding which Card is Best for Your Lifestyle

With the conflicting rates, benefits & services of each card, choosing a card to fit individual lifestyles can be tricky. Selecting a card that is best for you depends on how you plan to use it. People use credit cards for varied reasons. To some the reward points are the key attraction, small business generally find the small savings attached to their cards useful, others find them convenient for online bill payments & purchases.

Choosing a Credit Card that is Best for Frugal Living

The Benefits & Services offered by each credit card vary a great deal. The key is to evaluate which Benefit or Service will give you the maximum advantage. For instance, do not choose a card that offers you free air miles, if you are not a frequent flier.  Instead, look for a card with a cashback program or a membership rewards program  to help you save some money on websites that accept credit cards online { Disclosure: sponsored link}

For instance, I use an American Express Gold card for its great Membership Rewards program where points can be redeemed for great rewards from the finest names in travel, shopping, dining, and entertainment without busting my budget.

I like the variety of merchants that I can choose from while redeeming my points, which helps me, save cash. In addition, I can completely manage my account online from statements to disputing charges and the like.

Here are some of the key things to keep in mind while selecting a credit card:

Credit Card or Charge Card

I am a great fan of charge cards. In other words, these cards are ‘Pay in Full’ cards where you have to pay your complete balance in full on or before the due date. This is a great product for people on a budget ( including yours truly) or businesses who have the cash flow and do not need to borrow. A charge card then gives you all the convenience & benefits of a credit card without any interest charges and gives you tighter financial control.

A credit card on the other had gives you the flexibility to pay over time when needed. It can be a very expensive method of borrowing especially if you pay off your balance over a long period of time. Should you decide to choose a credit card, here’s what you should know:

Know the grace period

If you pay off your entire balance or pay, it off over a period of time knowing the grace period on your card is critical. It is essentially the time for which your credit is free. This is also what will help you plan your expenses and make sure you don’t fall into the debt trap.

Fees

Your goal as a frugal home manager should be to get a card without an Annual fee. Citibank offers the Citi Dividend card with no Annual fee and with a 5% cash back on purchases for first 6 months. If you decide on a card with Annual fees then it should offer you enough benefits/savings to offset the Annual charges. For instance, The American Express Platinum card comes with a $450 Annual fee but it offers unmatched travel privileges, a personal assistance concierge facility and many more features that are exciting & rewarding .

A card with a low transaction fee (transaction fee is essentially the fee deducted by the credit card company on every transaction) is easily acceptable at variety of Merchant locations. One should also inquire about late payment fees or over-the-limit charges. Another important aspect can be the credit limit offered to you.

Low-interest rate

If you prefer paying off your balance over a period of time then choose a card with a low interest rate. For a $2000 debt on your card with an annual interest rate of 20% you would end up paying $4241 over a period of 15 years. This just illustrates that even a 1% lower interest rate can save you a lot of money.

Acceptability

Generally, people use their credit cards at a variety of merchant establishments like fuel stations, restaurants, grocery stores, online stores like E-Bay and the likes. Hence, a card with greater acceptability is very important. Visa, Master Card, American Express are some of the most widely accepted cards across the world. A global card is handy if you travel overseas. This can be used for paying expenses in foreign currency.

Lost card liability

Typically, your liability for a lost card is nil once you report the card stolen/lost. This is a very important clause in the card member agreement and one should read it carefully to understand. Your maximum liability under federal law for unauthorized use of your credit card is $50. If you report the loss before your credit cards are used, the FCBA (The Fair Credit Billing Act) says the card issuer cannot hold you responsible for any unauthorized charges.

Customer Service

Remember that a company with an easily accessible and empowered customer service base is critical. You will need to contact customer services for many reasons – address changes, statement clarifications, disputing unauthorized charges, and the last thing you want is to be stuck with a credit card company that has a customer service department notorious for long hold times, ambiguous information and poor service. Do your homework by checking with your friends or peers on their experiences with the card company that you have decided to finalize. Look for any criticism in the print or social media as well.

So,do you use a credit card? Charge card? What did you think about when choosing to sign up for either?

Photo Credit: Shawn Rossi