How to Select the Best Credit Cards

best credit cards

Americans are addicted to earning rewards on credit cards. According to a recent survey conducted by Fidelity, 55% of cardholders own reward cards. The most prevalent reward is a cash back card, which was the credit card choice of 63% of the people who partook in the survey. Nonetheless, frequent flier points and travel miles are also quite popular choices.

So how can you decide what the best credit cards may be for you? Over the years, cash back cards have regularly delivered the highest value to a majority of their customers, but if you’re willing to do some work, the travel-mile and point credit cards might just offer an even better value. To decide which may be the best credit cards for you, you just need to be honest about your needs and wants. Are you the type of person willing to do some extra work so as to get bigger returns?

best credit cards

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Where Do the Rewards Come From?

Every time you use a credit card, the merchant normally pays a fee (interchange), most of which goes directly to your bank. Indeed, this fee structure is very complex. However, it averages 2% for Visa V +0.95%, MasterCard MA +1.15%, and a bit higher for the American Express AXP +1.06%.

Your goal must be getting as much of that interchange as possible. Just consider it a rebate on your daily spending!

Best Credit Cards: You Must Earn At Least 2%

Last year Citi launched the Double Cash, a credit card that pays 2% cashback on any money spent. You earn 1% whenever you make transactions and a second 1% if you pay your bill on time. Better still, there’s neither an annual fee nor a cap on the cash back you can earn. Simply put, spending $2,000 per month with this credit card would earn you $480 within that year.

This credit card is seemingly the gold standard of value and simplicity and one of the best credit cards available. If you have a cashback card but you earn less than 2%, it may be wise to switch to Citi.

If you use just one credit card, the Citi Double Cash is perhaps your best answer. However, if you’re willing to do some more work, you may get even better returns.

Can I Earn Over 2% Cash Back?

Citi may currently offer the highest flat rate cash back credit card, but there are still several other cards that pay even higher rates within specific categories. If you make many purchases within a specific type of category, it might make sense to get another card. For example, if you spend a lot on travel, you could be earning 4.25% cash back with a PenFed Premium Travel Reward from American Express. PenFed is a separate credit union anyone can join.

What About Miles?

Frequent flier miles are quite hard to value. The number of miles required usually depends on the number of seats the airline makes available. For instance, a flight to London in June on American Airlines could cost you between 60,000-130,000 miles. Most credit cards usually offer 1 mile for every $1 dollar spent, meaning a 60,000-mile trip would equal 2.8% cashback, whereas a 130,000-mile plane ticket would only be 1.3%.

If you’re capable of planning ahead, you can always find incredibly good deals using your miles which regularly beats any cashback rates. As a matter of fact, it can get even more lucrative when you take a look at the bonus offers some miles cards have. It’s relatively easy to find things like a 30,000 miles bonus offer for signing up for a new card. For instance, the United Airlines Credit Card offers 30,000 miles when you spend $1,000 during the first three months. 

What About Points?

best credit cards

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Many credit cards simply offer points. You can transfer your points to receive not only travel miles but things like gift cards. Some of the famous of these include Chase Sapphire Ultimate Reward Card and Membership Rewards. Both offer the ability to transfer points to airline partners, allowing the cards to work just like frequent flier cards. As usual, the real value of your points depends on the deal which you get at the time you book your seat.

In most instances, if you aren’t using your points for travel miles, you’re actually getting a worse deal compared to cards like the Citi Double Cash cashback card. For instance, if you used the Membership Rewards card to buy a $25 Home Depot gift card, it would cost you 2,500 points. This means that you earned only 1% cashback, which isn’t a great deal at all.

What Is the Catch?

When a credit card company gives you 2% cashback, they’re not making any money on your purchases at all. As such, they will have to make the cash somewhere else. Most companies normally rely on the annual fees while others are betting you won’t pay your balance in full. Interest rates on credit cards are very high. If you decide to borrow money using credit cards, you’re likely to be paying back far more interest compared to the rewards that you earned.

Credit cards can be brutal on customers who make late payments. Even a payment that’s just one day late might result in a relatively big late fee and/or an increase in your interest rates. In case that happens to you, don’t be afraid to call the company and complain. In most instances, credit card companies are willing to reverse these charges to keep customers happy. Earning rewards only makes sense when you have the discipline to pay your balance on time and in full every month.

Why Are Cash Back Cards Usually The Best Credit Cards?

A savvy consumer is capable of getting incredible deals on mile credit cards. Bonus offers alone are more than enough to send individuals to Europe and back over the summer. However, many people don’t have the discipline, time, flexibility, or patience to maximize their miles. As such, they get frustrated and eventually let them sit there. Alternatively, they might convert their points to receive gift cards. If you don’t think you can hunt the best redemption opportunities, then a cash back card is possibly your best bet. Getting 2 percent of every purchase that’s deposited into your account every month is incredibly easy.

Featured Image Source: Thinkstock/TuTheLens

Posted on October 3, 2016