Considerations to make when researching credit card options. 

Being in possession of a credit card has become a staple in many people’s lives. When it comes time to apply for a new credit card, there are many options that can make the process overwhelming. Not every credit card is a good fit for every financial situation, nor does every person meet the requirements for each credit card. To best understand what credit card would suit your personal needs, it’s important to take the time to research the features and consider the long-term effects of the credit cards you are considering. Listed below are some of the important features and possible implications to take into consideration.

1. Interest rates – Credit cards come with an interest rate that applies to outstanding balances. The rate may differ depending on the type of borrowing used. Cash advances and balance transfers typically have a higher rate compared to purchases. Paying attention to your interest rate is important, as carrying a balance can result in significant interest charges over time.

2. Credit Card Fees – When applying for your credit card, its important to not only pay attention to the interest rates, but to any fees that could be charged to you. Some cards have annual fees, late payment fees, over-limit fees, foreign transaction fees, and balance transfer fees. It’s important to be aware of these fees to assist in the decision-making process when choosing the card that is right for you. 

3. Credit card rewards – Many credit cards offer reward programs such as cash back, travel rewards, or points that can be used to purchase merchandise. When choosing your credit card, the rewards are a nice perk, but don’t forget to weigh them against all other aspects to ensure it’s a good fit for you, such as the interest rate and fees.

4. Credit limit increases – After some consistent use, you may be offered a credit limit increase. This increase is based on factors such as credit history, income, and payment behaviour. If you are offered the credit limit increase, there is no need to worry about whether an inquiry on your credit has been made, however, if you request the credit limit increase, it can result in a hard inquiry on your credit report which may result in a temporary drop in your credit score. Accepting the credit limit can be beneficial even if the access to extra funds is not needed. A higher credit limit can potentially improve your credit utilization ratio, which is the amount of credit you are using compared to your total credit available. This can have a positive impact on your credit score.

 
5. Effects on your credit – Depending on how you utilize your credit card, there can be either a positive or negative impact on your credit. By making payments on time, and responsible use of the credit card can help build a positive credit history and improve your credit score. However, if you carry high balances (high credit utilization), it can negatively impact your credit score. It’s important to keep your balances low, pay in full on possible, and pay on time. 

6. Credit card debt – While getting a credit card can have many benefits, there can be downsides as well. Owning a credit card can lead to purchasing temptation, leading to a higher debt level. The higher the balance, the harder it is to pay down, leading to carrying debt. To avoid this, it’s important to remember to only borrow what you can afford to repay to avoid accumulating debt. 

The reasons for credit card ownership will vary from person to person and reasons can range from convenience, building credit history, online spending, tracking spending, etc. When used responsibly, credit cards can serve as a valuable financial tool. It is however important to remember the risks that come with credit card ownership and that irresponsible use can lead to overspending and high debt levels.

If credit card debt has become a financial concern, there are options to help you tackle your debt and move forward. 

If you are looking for advice, or a second opinion about your debt, it does not cost anything to talk about your options. Every financial situation is unique and viable options can differ from person to person. A conversation free of judgment and cost, is the first step to determine options for debt that make sense for you. For a free consultation, please call or text (506) 645-1814 or email jaime@tackledebt.ca; or visit www.tackledebt.ca.