Choosing which credit card is right for you

By Ben Woolsey

If you are trying to choose between credit cards, take these factors into consideration before filling out an application:

• Interest rate
• Reward programs
• Annual fees
• Member benefits

Interest rate
If you pay off your balance every month, a low interest rate probably isn't too important to you. But if you tend to carry a balance -- the Reserve Bank of Australia's figures show that in May 2008, the average outstanding balance on a credit card account held by an individual was $3,299 -- a credit card with a low interest rate could save you a lot of money. Cards with the lowest interest rates usually charge an annual fee, so first work out if the savings in low interest on your average balance are going to be more than the extra amount you'll pay in an annual fee.

Reward programs
Most issuers have the option of a card with a reward program that pays you back for specified spending. This may involve cash, discounts on certain items, "free" merchandise or frequent flyer points. Be aware that you have to earn a large number of points before attaining rewards, and points may expire, so this type of card won't benefit you unless you use it frequently - and you actually want the rewards that you are offered. 

Annual fees
Credit card perks, including lower rates, often have a price: annual fees. Consider whether the benefits you get from a card outweigh the fee. For example, if you're not going to use the card frequently and aren't likely to earn a reward, is an $85 annual fee really worth it? Many credit cards have no annual fees, but these often come with higher rates.

Member benefits
Benefits vary from card to card. Some offer discounts at certain stores, while others offer frequent flyer points. These benefits can be useful if they match your lifestyle. Weigh the pros and cons of a card's benefits. For instance, if you don't travel often, you may not want to go with a card that offers frequent flyer points.

You should also check to see if you can get the same benefits elsewhere for a cheaper price - highly discounted airfares may be cheaper than the annual fee and higher interest rate on a card that offers frequent flyer points, for example.

When selecting a credit card, it helps to take these factors into consideration and pick the card that best fits your lifestyle and credit situation.

Published: September 18, 2008