Take Advantage Of Your Rewards (Card)
Credit card companies have devised a way to confuse consumers: by offering rewards and enticements to get them to move from an existing card to a new one. This can come in the form of lower interest rates, points, rebates, a lower annual fee or some combination of all of them. There's nothing wrong with switching cards, but before you do, you must get to the bottom-line cost the change will have for you. (The average American household has four cards, but does that mean more is better? Find out in How Credit Cards Affect Your Credit Rating.) Interest Rate
If you own two cards, and the interest rates are 8.5% and 16% respectively, on $1,000 constant balance you will be paying about $83 or $172 respectively. If you don't have or never will have a balance on your card, the lower interest rate isn't valuable to you, and you should look for other perks.
When trying to compare and find the best card for you, it's crucial to decide what type of borrower you are. Are you going to just roll the balance on to this card for a short time, and then try to move it again? While this isn't a suggested strategy, it has been used by many people to avoid higher interest rate charges. In that case, while there is risk you won't be able to roll it into another card, the introductory rate may be the key for you.
If you have good credit and are a perfectionist when it comes to paying bills on time, the average rate may be the key for you. But the occasional late payment may cause you to find yourself facing the maximum annual percentage rate (APR). (It needs to be noted that, if this is the case, you should be focused on paying off the debt.)
Instead of lowering fees, some cards provide points that can be used for purchases or airline miles. Airline miles earned are based on the amount of money you spend using the card. Naturally, the more you spend, the more miles you earn. But beware of the "free gift" theory, which states that the "gift" is worth much less than the principal you'd be paying in order to earn it - therefore, placing you in unnecessary debt. However, big spenders, especially those with corporate accounts that can keep the miles, may find the points to be irresistible. (Be sure to take advantage of whatever your card has to offer, in Credit Card Perks You Never Knew You Had.)
If a card offers you rebates, the amount of spending you do is going to be a significant factor in the value of the card. So look at past spending and determine your most likely spending habits going forward. If you run $5,000 through your card per year, and the card offers a 1% rebate, you save $50 using that card. The more you run through, the bigger the rebate. But if you aren't adding new charges, then this isn't the way to go. Typically, rebates are only offered on new purchases, so just paying off a balance won't help here.
If the only difference between cards is the annual fee, the decision would be easy. But it's usually not that simple. For example, if a flight rewards card gives a certain amount of points per dollar spent, but has a higher annual fee and a higher interest rate, you need to calculate how much needs to be spent and how soon the balance needs to be paid off in order to make it worthwhile. (Avoid these pitfalls to keep your credit score healthy and your debt under control; 6 Major Credit Card Mistakes.)
Doing the math for each potential card, based on your projected use of the card, is the only way to decide which method is best for you. If you can get to the bottom line, you can find the break-even point at which you will begin to see a return on changing from your existing card. In some cases, this may never come - and in others, it may be instant. To determine where a different card would pay off for you, it's crucial to understand your personal spending pattern and decide accordingly.