The best credit cards are the cheapest credit cards.
Elaborate reward programs and other perks are nice, but you shouldn't let them distract you from what really matters.
What most of us need is a card with consumer-friendly terms, the fewest possible fees and lower-than-average interest rates.
Now’s the time to take a good hard look at how much you’re paying for the privilege of carrying your credit cards and consider replacing those costly old accounts with a new credit card.
Sorting through our database of the best credit card offers from scores of issuers is a great place to start.
Just follow these 7 smart moves to find the best deal on a new credit card.
Smart move 1. Never pay an annual fee.
Annual fees are often the biggest out-of-pocket expense for consumers who never — or rarely — carry a balance.
They range from $80 or $90 for a typical airline reward card to $500 for prestige cards that cater to the famous and well-to-do — and those who think the card will make them appear famous and well-to-do.
The best deals don't have any kind of annual or membership fee.
Don’t be fooled by offers that waive the fee for the first year. You’ll forget about it and then 13 months later find a $200 fee charged to your account.
Smart move 2. Snag a low, and preferably fixed, interest rate.
Ideally, you should pay the balance in full every month and avoid any interest charges.
But sometimes stuff happens. You never know when a financial predicament could happen and you might have to carry a balance for a little while.
If it comes to that, you want to have a card with the lowest possible rate.
Your first choice should be a fixed-rate card that costs no more than the national average of 13.0% APY.
The next-best alternative is a variable rate that's below the national average of 15.1% APY.
Variable rates are determined by adding percentage points to the prime rate, which is the rate offered to the best commercial borrowers. You'll usually see the interest rate for these cards expressed as "prime plus 7.95 points."
Right now, the prime rate is a very low 3.25%. It's been been driven down by the Federal Reserve's campaign to boost the economy. But when the Fed starts raising rates, the prime rate and the variable rate on credit cards will go up, too.
Smart move 3. Pay no attention to introductory interest rates.
Banks often use low introductory rates that only last a limited time to lure you into signing up for a card. You need to think about what you’ll be paying after that.
You may be paying 0% for six months or a year, but if you’re not paying attention, your rate could later jump to 18% or more.
That could be higher than a regular APR of 10.9% you might have gotten on another card.
“Teaser rates,” as they’re often called, simply shouldn't be a factor in choosing a credit card.
Smart move 4. Don’t be distracted by reward programs, either.
Here's the dirty little secret about reward programs: Most cardholders can't spend enough to earn the tens of thousands of points or miles required to offset the costs.
Most reward cards hope ads touting the luxury vacations or other glamorous rewards you can earn will distract you from the fact that they come with higher-than-average annual fees and interest rates as well as other costly terms.
Pay late, and you could lose all of the points or miles you earned that month and be unable to redeem any existing points or miles as long as your account is considered to be delinquent in any way.
That’s why you’ve got to be a big-spending business owner, or have a hefty expense account, to make most reward cards pay off.
If you find a card with no annual fee, consumer-friendly terms, a great rate and a reward program, that's fine.
But reward programs are like teaser rates. They shouldn't be a factor in choosing a card.
Smart move 5. Avoid cards with no grace period.
The grace period is the number of days you have to pay your bill in full before you incur a finance charge on new purchases.
This is what allows you to buy a new dress today and pay for it next month when the credit card bill arrives without being charged any interest.
Although federal laws require credit card issuers to send their bills at least 21 days before payments are due, it does not require them to offer a grace period.
As a result, some credit cards start charging interest from the moment purchases are made, much like virtually all cards do with cash advances.
Consider this to be a deal killer.
The ideal credit card should offer a grace period that is one calendar month.
Smart move 6. Watch out for big balance transfer fees.
If you're planning to move debt from an existing account to your new credit card, you need one that has a balance transfer fee of 3% or less.
Avoid cards that charge more — up to 5% in some cases.
You also want a $50, $75 or even $150 cap on any transfer fee. If you sign up for an account that has no cap, you could wind up paying $500 to move a $10,000 balance.
You need to factor this in because, even if you’re getting a lower interest rate, a high balance transfer fee could wipe out any savings that you’d get.
Smart move 7. Never "opt in" to over-the-limit purchases.
Some credit cards will act like they’re doing you a favor by asking if you’d like them to approve charges that push you over your credit limit.
The correct answer is always “no.”
That’s because they’re seeking approval to whack you with excessive over-the-limit fees.
Federal law doesn’t allow them to do that unless you voluntarily opt in to an over-the-limit program.
If you're near your limit, it's better to have a purchase declined than to incur these large fees.