Choosing a Credit Card

Michelle Vullo Pastor   

An informative discussion with accredited financial counselor, Michelle Pastor. Topics include developing sound credit card habits, while keeping your monthly budget intact.

Transcript

John: Welcome back to the CreditFYI Café. Hi, I'm your host, John Fischer, here again with some helpful insights into the credit world, your personal finances, identity theft matters, and other related issues.

Today, we're talking with accredited financial counselor, Michelle Pastor, an expert on consumer debt, money management, and credit reports. Welcome, Michelle.

Michelle: Thanks, John.

John: It's good to have you. Today, we're going to be talking about a number of different topics. Why don't we start with credit cards; it seems like a pretty hot topic these days — especially when it comes to finding one that best suits your budget. What factors need to be considered when choosing a credit card?

Michelle: Well, John, there are so many different factors that you have to look at when you're trying to figure out which credit cards to choose. First, the biggie is interest rates. And that is so important because that decides what finance charges you're going to have to pay each month. So you definitely want that interest rate to be low. You could go from 0 percent all the way to 32 percent with an interest rate — the 0 percent like the promotional rate, 32 percent like if you haven't made your payments on time. You can go anywhere in between those two numbers — 0 to 32 — so it all depends on how good your credit is. So that's the first thing to look at. But some will choose a credit card just based on the perks alone: They might like the airline miles that they get, or the cash rebates that they get back. So that's another thing to look at. But it's also important to look at fees. So when you're looking at a credit card company, look at — does the credit card company charge a yearly fee? And that used to be really common, but nowadays it's rare to see a yearly fee unless it's a card that gives miles or rebates. But even if the credit card company doesn't charge you a yearly fee to use the card, you may still end up paying a similar fee. It's really sneaky, but some credit card companies slip in a monthly fee. They might call it a membership fee or some other type of fee, that could be seven to 10 dollars a month. And I've found that many of the clients that I work with don't even notice it. So when you're shopping around for a credit card, don't just ask if there's a yearly fee. Dig a little bit deeper, and ask about all the fees.

Host: That's interesting — especially in terms of interest rates. Of course, as you mentioned, it's different for every person. But if you had to — 30,000-foot view here, we'll say — if you had to point to one, at least, ground-floor factor — would it be the interest rates? And obviously you mentioned those other factors, but is that really the top dog — if you will — at this point?

Michelle: Well, that really depends on the person's financial situation, so there's not a real easy answer here. For instance, if you're trying to consolidate debt, you might go with an interest-rate credit card. And that might be the most important thing that you're looking for; of course, the lower, the better. But, before you transfer balance to another credit card, call and ask your credit card company to lower their own interest rate. If you have a good payment history, they're probably going to do it. And then you don't have to transfer your balance. You can just leave it where it is.

John: In terms of balance transfers, that's always sort of a potential "Pandora's box" for a lot of our listeners, I'm sure. Is there a rule of thumb that you go by regarding balance transfers? Is it something that people should be wary of?

Michelle: Well, there are some things to watch out for when you do it. So make sure that you know the pitfalls to look out for. That's why I said — just a second ago — to see if you can get your current credit card company to lower your their own interest rate. But if they won't do it, and you still decide that you want to transfer a balance rate to get that lower interest rate, be careful of two things: Number one are transfer fees, and number two is the impact of transferring that balance, and what it has on your credit score. So number one, you're looking at transfer fees, and they can be typically three percent of the balance that you're transferring. Sometimes that three-percent fee can wipe out any savings that you would get from a lower interest rate. And two, keep in mind that, after you transfer the balance, if you make one late payment, your interest rate can skyrocket — to an interest rate that's even higher than it was before you transferred the balance. So the transfer fees and that sort of thing are the first thing to be careful of. The other thing to understand is that balance transfers impact your credit score. Because every time you apply for credit, your credit score takes a hit. So don't just apply for credit just because it's a good offer; make sure that it makes sense for you, and don't just chase offers.

John: That certainly makes sense. With all those factors out there to consider, and I know it's — some things are very much done on a case-by-case basis for individuals, is there a correct number of credit cards? And is having multiple credit cards a good thing? Or — for our listeners out there — are they really better off just having one?

Michelle: Well, there's really no correct number. Some will say four or five credit cards is best. But if you budget right, and only use a credit card the way it's meant to be — for convenience, you pay off the balance each month — in that case, you only really need one credit card, with a second one as a spare, just in case.

John: All right. Okay, so out there in "Listening Land," when you're choosing a credit card — or cards — choose wisely. Everything from your credit score to your overall budget structure could be affected by your choice. Thanks again for talking with us, Michelle. We all look forward to your next stop in the CreditFYI Café.

Michelle: Thank you, John.

John: Last week, we asked you about U.S. consumer revolving debt. Incredibly, the total amount of revolving debt exceeded the $900 billion dollar mark in 2007. And sticking with our discussion on credit card tips: Did you know...? While statistics tell us that most Americans carry between five and 10 credit cards, some financial analysts suggest that many people carry up to — guess how many different credit cards? We'll give you a hint: The number could wreak havoc on your credit score.

Stay tuned for your answer in our next CreditFYI podcast.

In the meantime, we'd love to hear what you think. So the next time you've got credit-related, financial, and ID theft-oriented questions, just send us an e-mail at: creditfyicafe@creditfyi.com. And we may use one of your questions on the air. Please send your thoughts and questions. We're counting on you!

Until then, remember that the biggest factor in controlling your credit destiny … is you.