Many consumers may know that credit cards can be somewhat costly if they’re not managed correctly, but new evidence shows just how important it is to be cautious when deciding between new accounts.
The value of credit card offers for new accounts, particularly those that come with rewards programs, has increased significantly in the last year or two, making it all the more important for consumers to carefully evaluate their true benefits, according to new data from Consumer Reports. For instance, many travel rewards cards, which grant consumers airline miles for every dollar they spend on the account, now come with initial offers that grant consumers hundreds of dollars worth of points or more just for signing up, which can be very enticing.
However, whenever a borrower is evaluating a potential new credit card, it’s important that they take the time to consider not only the value of the rewards they might be able to earn either initially or over the life of the card, but also the costs, the report said. For instance, many rewards cards come with higher annual fees and interest rates than typical accounts, meaning that the costs incurred for carrying a balance or simply operating the account will likely be larger than they might have paid if they stuck with a no-frills card.
Further, though, many card issuers are now also including more tertiary benefits with the cards as well, and these must be considered as well, the report said. For instance, many travel cards now come with the ability to avoid checked bag fees, which can essentially pay for an entire year of using the card with just one round-trip pair of flights, and will therefore be extremely beneficial.
However, miles cards, and those that grant points, might come with restrictions on redemption of accrued rewards, the report said. For this reason, many experts say it’s important to consider a cash-back card instead.
Whenever a borrower is considering a credit card of any type, they should be careful to compare a number of options so they know which will be best for them.
Image: Picture Perfect Pose, via Flickr