by Taylor J. Kovar – CEO/Founder, Kovar Wealth Management
–Hey Taylor – I got a credit card offer in the mail that seems really good. Low spending limit but the interest rate is good and I get cash back. So… what’s the catch? Should I be suspicious?
–Hey Tommy – I think a dose of suspicion is always healthy when it comes to credit card companies. Their one big goal is to have you pay too much in interest. With that in mind, as long as you check your blindspots, there is such a thing as a credit card worth having.
- What’s the plan? You mention cash back, which is great. Who doesn’t want to get cash back simply for spending cash? The trouble is, you have to spend a lot to get much back in return. Are you spending enough to make the cash back worth it? More to the point, should you be spending enough to get handsomely rewarded? You have to get your priorities straight before that credit card can enter your wallet, and priority number one is only spending money that you already have. If you’re good with a budget and won’t use the plastic to drive up debt, then you’re allowed to get excited about cash back. Otherwise, it’s a trap.
- Fine print. You probably won’t get full-on scammed by a credit card company because they don’t want the lawsuit, but that doesn’t mean you’re entirely safe from trickery. That good interest rate is most likely poised to shoot through the roof if you’re late on a payment. In fact, it might be a promotional rate that will spike as soon as your first six months or year as a cardholder are up. The good features are always in big, bold letters right on the envelope, but it’s the asterisks and small font stuff that you need to read so you don’t find yourself paying an unexpected annual fee or seeking out a balance transfer because the rate got absurd.
- Everything else. Looking past this one credit card, it’s good to consider the credit conundrum as a whole. Frankly, you need credit cards or some other lending option to build your credit score. You also need to avoid bad credit cards, because closing an account you don’t use can hurt your credit score. Cash back is great, as are airline miles and points toward specific companies where you’re already spending money. Bottom line, you don’t want to jump at the first card offered to you. Ten minutes of research goes a long way toward making sure you have something that fits your lifestyle. Check out Investopedia or Nerdwallet or any other site that breaks down and reviews financial matters and you’ll feel much more informed.
If you know how credit cards work, there is no catch. Pay in full, pay on time, and take advantage of the rewards. Hope it all works in your favor, Tommy!
