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How to Choose the Best Credit/Rewards Card for You
Like most Americans, you’ve probably noticed a significant increase in the amount of credit card and rewards card offers you’ve received lately. That’s because the number of offers dispersed through the mail during the second quarter of 2010 exceeded 1 billion, more than double the 419 million for the same period in 2009, according to a report from Mintel Comperemedia, which tracks direct marketing.1 As a physician, you’re likely receiving more than your fair share. Credit cards and rewards cards are a staple in today’s society, and have been for many years. According to “The Survey of Consumer Payment Choice,” published by the Federal Reserve Bank of Boston in January 2010, there were 176.8 million credit cardholders in the U.S. in 2008, with the average credit cardholder having 3.5 credit cards. About 60% of all consumers had a rewards credit card.2 What’s challenging, however, is wading through the sea of offers to select the credit card or rewards card that is right for you. The card you end up with should be a reflection of your needs, lifestyle, and purchasing habits—and that’s going to be different for every individual. But the process of card selection holds true no matter what your purchasing profile looks like.Names and interest rates There were 270 million Visa credit cards and 203 million MasterCard credit cards in circulation in 2009.3,4 The numbers for American Express and Discover credit cards pale by comparison, and stand at 48.9 million and 54.4 million, respectively.5,6 Those numbers, says Joel Ohman, CFP, founder of the Website CreditCardChaser.com, are an important consideration in the credit card selection process. “A good rule of thumb is to have at least a Visa or a MasterCard, because they’re accepted in more places,” says Ohman, who admits that his favorite is an American Express cash back card. “But some places just don’t take it.” He explains that some merchants may not want to pay additional and/or potentially higher fee schedules for Discover or American Express, and rationalize that, given the lower number of consumers holding either of those two cards, they won’t be losing a lot of business by declining them. As for interest rates, Christine Moriarty, CFP, president of Vermont-based MoneyPeace, Inc., says that should be less of a concern in your decision-making process, especially if you don’t plan on carrying any balances forward from month to month—a practice she strongly advocates. “The only time it makes sense to carry the balance from month to month is for someone who gets reimbursed for business expenses,” Moriarty says. That’s because individuals who need to use their credit card for travel may receive their monthly statement prior to being reimbursed. “If they pay the bill in full, most will have to dip into savings or wreak havoc on their household financial system.” Of greater importance, she says, is to remember that many credit cards, and quite a few rewards cards, carry annual fees, such as the American Express Premier Rewards Card, which comes with a $175 annual fee—another practice Moriarty frowns on. “I may be old-fashioned, but I’m also living in today’s world. And I say an annual fee is not necessary.”Travel points or cash back? Are you a frequent traveler, either for business or pleasure? If so, Ohman says it makes more sense to obtain a card that helps you earn points or cash back toward airline tickets, or an affinity type program that offers higher average rewards if you travel on a select airline or stay at a specific hotel chain. Two of the more popular travel rewards cards are the PenFed Premium Travel Rewards American Express card, and the Simmons First Visa Platinum Travel Rewards card. The former awards five points for every dollar spent on airline tickets, and three points for every dollar spent on hotels and dining. The latter awards one point for every dollar spent, with 22,000 points needed to quality for an airline ticket. For many, however, a basic cash back rewards card will suffice. “I’m fairly average and I don’t travel a lot,” Ohman says. “If I had to pick, I’m very happy with my plain cash back card. I don’t have to worry about different formulas for calculating ratios and points. I know that if I spend X-amount, I’m going to get 1% or 2% back. People tend to like the cash back cards because of their simplicity.”