Last June, I wrote a post asking if we really needed credit cards, and came to the conclusion that yes, we did. At least one credit card, since there are many entities that will require proof that it’s you via a credit card, or won’t hold something for you unless you give them a credit card number of some kind.

Since we’re past the first question, then it makes sense to look at what you might want in a credit card. Here are some suggestions for what to look for that will serve your needs and also help you stay safe.

1. There’s a difference between credit cards, debit cards, and charge cards. Credit cards are what you use to help yourself borrow money from another entity, which you’ll pay back in small monthly installments. Debit cards are tied in to your bank account. Even if they have a credit logo on them, you’re actually spending your own money. Charge cards are cards that allow you to make purchases without initially spending your own money, but you have to pay off that entire amount when the bill is due. That’s what American Express is.

2. Credit limit is more important than interest rate. You won’t hear that too often, but it really is. For instance, having an interest rate of 30% annually means very little if your credit card limit is only $500. That’s only a hit of $2.50 for every $100 you owe. But if your limit is $10,000 and you have $9,000 sitting out there, that’s going to be a killer long term.

My suggestion is to keep your credit limit as low as possible to protect yourself. The truth is that if you have a card with a high limit, your mind says “heck, that only costs $400, and I have way more than enough credit to buy it.” That’s how people get into trouble. If you did that once a month but only paid the minimum, you’ll be in financial difficulties really quickly. Try to have only enough credit limit to reach 10% of your gross income. So if you make $30,000 a year, that’s $3,000 overall. If something goes wrong, as in you lose your job, it’ll be much easier to handle payments on lower balances for awhile.

3. Now we look at interest rates, and once again, not only the lowest interest rate. You want to make sure you have a fixed interest rate rather than a variable rate. Variable means it can be really low at one point and suddenly skyrocket the next. This doesn’t mean your interest rate can never be jacked up, as we’ve seen often over the past few months, but it does mean you’ll know what your rate is from month to month unless there’s a unique event. To me, it’s far better having an interest rate of 14% if it’s fixed than having a variable rate that might be 7.9% one month, then a few months later could be around 20%.

4. Big bank vs small bank credit cards. Personally, I’d rather go for smaller bank credit cards, because more of them are stable as opposed to bigger banks (though you really have to be paying attention to your local news as it pertains to local bank issues) and if you have difficulties, they’re more willing to work with you and not put as much pressure on you to come through for them. The big boys don’t care about you because they don’t know you; local banks know you better.

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