Credit Cards
You should be carrying the cheapest possible credit card
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.
If you're a hard-working 99-percenter paying lots of fees or higher than average interest rates, now's the time to look for a new card and close those costly old accounts.
Sorting through our database of the best credit card offers from scores of issuers is a great place to start.
Just follow these 8 smart moves to find the most reasonable terms and lowest rates.
Smart move 1. Never pay an annual fee.
Annual fees are often the biggest 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 to waive the fee for the first year. You're looking for an affordable, long-term relationship, and that's usually found in standard nonreward cards.
Smart move 2. Snag a low, and preferably fixed, interest rate.
The smartest thing to do with a credit card is to pay the balance in full every month and avoid any interest charges.
The next smartest thing to do is to get a card with the lowest interest rate possible. You never know when a financial predicament could happen and you might have to carry a balance for a little while.
Your first choice should be a fixed-rate card that costs no more than the national average of about 13.5% APY.
The next best alternative is a variable rate that's below the national average of about 12%.
Why go for a pricier, fixed-rate card?
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%, making variable rates seem like a good deal.
The prime rate has 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. Don't be distracted by introductory rates...
Banks often tout low introductory rates when promoting their cards, but you need to focus on what you'll be paying after the first six, nine or even 12 months.
Teaser rates shouldn't be a factor in choosing a credit card.
Smart move 4. ...or reward programs.
Here's the dirty little secret about reward programs: Most cardholders can't possibly spend enough to earn the tens of thousands of points or miles needed to justify the fees.
You've got to be a business owner or have a hefty expense account to make most reward cards pay off.
They also often come with higher annual fees, steeper interest rates and stricter terms than other cards. And since the implementation of the Credit Card Accountability, Responsibility and Disclosure Act, companies have gotten even stingier with their rewards.
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.
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. Watch out for how your balance is calculated.
The bigger the balance, the bigger the finance charge.
The most consumer-friendly method is "adjusted balance billing."
It takes the balance at the beginning of the billing cycle and subtracts any payments or credits during the month. Purchases made during the billing cycle aren't added on to the total.
Unfortunately, the "average daily balance" method is more common. It calculates finance charges based on the average daily balance of your account, including new purchases.
The latter results in you paying more interest.
Smart move 6. Avoid cards without grace periods.
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 the Credit CARD Act requires companies to send their bills at least 21 days before payments are due, it does not require them to offer a grace period.
That's resulted in some cards eliminating grace periods and charging interest from the moment purchases are made, much like virtually all cards do for cash advances.
Smart move 7. 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. (Some cards are now charging as much as 5%.)
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.
Smart move 8. Don't "opt in" to fund over-the-limit purchases.
Cardholders have been allowed to exceed their credit limits by a few hundred dollars so that they can be hit with an over-the-limit fee.
But the Credit CARD Act no longer allows banks to charge over-the-limit fees unless customers voluntarily opt in to some kind of over-the-limit protection plan.
Don't do it.
If you're near your limit, it's better to have a purchase declined.
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