A common question among financial consumers is "what's the best credit card?"
I asked the same question recently as I reevaluated my own credit card choice. I like to earn travel rewards on my credit card purchases because it's like having a little piggy bank set aside to pay for vacations, but I realized that my travel habits had changed quite a bit over the years.
I wasn't staying at the same hotel chain as often, and transferring their points toward other hotels or airlines wasn't very efficient. The number of points deducted was far higher than the intrinsic value of the points. (For most reward cards a common view is that each point is worth about one penny.)
But for an analytical person like me, the process of actually choosing a new card was pretty overwhelming. If my travel needs are so varied, does it make sense for me to use a loyalty card to one hotel chain or airline? Should I forget about reward points and just get a card that pays a cash rebate? How valuable is the sign-up bonus?
With so many travel bargains available online today, I chose a card that earns points which I can apply to any hotel, airline, car rental company, or even travel packages. This gave me the most flexibility to find the best hotel deals, lowest airfare or best flight schedule.
But what's the best credit card for you? If you know a few things about your spending habits and preferences, you can quickly narrow the field and select the best card for your needs. If you're thinking about switching credit cards, think about the following:
* Do you want cash back or rewards? Deep down inside I know getting cash back is the most straightforward way to save money, but it's not nearly as fun as having a stash of money tucked away for travel. Still, do you want to have loyalty to a single hotel chain or airline? Or do you spend a lot on gas making rewards for gas purchases more attractive?
* Do you want to pay an annual fee? If you have good credit you can get a card without paying an annual fee, but if you choose a specific hotel or airline card you may end up paying a fee that could range from $20 to $99. Some of the best rewards cards charge a fee, but if you spend enough on your monthly bill it can outweigh that cost.
* Do you travel internationally? Most cards will charge a fee for processing international transactions, but some charge less than others. If you frequently travel outside the U.S., pay attention to how much additional these charges will cost.
* How much do you spend each month? If you track your expenses you can more easily determine which card is best for you. For example, you can earn up to 5% on gas purchases each month with one particular card I found. If you spend a lot on gas, these cards might save you the most money.
* Are you transferring a balance from another card? Some cards are specifically designed to give you flexibility in paying down your debt. One card I found provides free interest for 18 months.
I intentionally omitted the names of the cards in my article because it's not the brand name that matters. What matters most is having a card tailored to your lifestyle.
There are several websites that rate cards and help you apply for a card online.
I've reviewed several of these sites and found NerdWallet.com to be the most user-friendly and the most helpful. The simplest way to use NerdWallet is to go to www.nerdwallet.com/the-best-credit-cards, and select from their "Best Credit Cards" list (Best Hotel cards, Best Balance Transfer cards, Best for Students, etc) - they have nine "Best of" categories in all.
Alternatively, if you know your detailed spending habits you can also get customized data to help you make your selection. Once you enter your monthly spending for gas, groceries, restaurants and other expenses, the site calculates your annual savings for a variety of cards, factoring in the annual fee, sign-up bonuses, and annual rewards. It does all the analytical work for you.
But be forewarned - the best rewards programs aren't a bargain if you're paying interest on a monthly balance. The first rule in having a credit card is paying off your balance every month. Otherwise the interest you pay could outweigh the benefits you're hoping to get.
Gary Alt is a Certified Financial Planner and a NAPFA member at Monterey Private Wealth in Pleasanton.