How do I decide between cash back rewards and low interest credit cards?

If you’re in the market for a credit card, chances are a special promotion may have left you with a difficult choice: take advantage of a low 0% introductory APR offer, or apply for a card offering generous cash back rewards.  Is it possible to find a credit card that offers both? Choosing between a low APR offer and cash rewards card takes time. You need to evaluate your current situation and do a little number crunching to calculate your potential savings.

What should I look for?

Before you apply for a credit card, it’s important to evaluate your current spending patterns. Analyze your spending habits to see where you have the opportunity to earn the best rewards whether it is cash back, points or miles. It’s important to factor in how long you plan to use the card. If you will be making a large one-time purchase that you need time to pay off, a card with a 0% intro APR can lead to more short-term savings, provided you can pay off the balance before the introductory APR expires.

Understand cash back rewards cards.

Cash back credit cards allow you to earn rewards where you already spend. There are many different types of cash back rewards cards. Some credit cards offer a flat 1% back on all purchases and others may offer points, such as 1 point for every $1 spent. Some credit card rewards programs offer 3%-5% cash back different places each quarter, like certain retail stores and entertainment purchases. A cash back rewards card is most advantageous if you pay your balance off every month or maintain a very low balance.

Evaluate low APR offers.

Low APR credit cards are best if you plan to carry a balance rather than pay off your bill in full each month. A low interest card helps you save money on finance charges over time. Always read the terms and conditions carefully.  If you are applying for a card with a 0% intro APR, you need to know exactly how long the introductory rate will last and what the purchase APR will be once the zero percent APR expires. Are you carrying a large balance on another credit card? Look for a credit card that offers a 0% intro APR on balance transfers. Depending on the size of your balance, you may want to look for a look for a longer introductory period such as 15 to 18 months.

Know your credit score.

Getting the best APR isn’t as simple as applying for a card with the lowest rate. After the zero percent introductory period, most low APR credit cards switch to a variable purchase rate, typically 11.99% – 23.99%. Only applicants with the best credit histories will qualify for the lowest interest rate. A general rule of thumb: the higher your credit score, the lower your interest rate will be.

Look for extras and perks.

Find out what other benefits and perks the credit card offers. Many credit cards offer sign up bonuses such as double miles or $100 cash back on qualifying purchases within 90 days of opening your account. Look for credit card rewards programs that allow you to redeem for cash, get statement credit, travel rewards or gift cards to your favorite restaurant or clothing store. With some credit cards you can even redeem your cash back or points for select online retailers like or iTunes®.  You may also earn double rewards shopping where you already spend through your credit card rewards mall.

The bottom line:

You’ll find a low interest card advantageous if you carry a monthly balance or if you are trying to pay off existing credit debt. If you are working to reduce your credit card debt, making a balance transfer to a low interest card can help you get out of debt faster because more of your monthly payments will go towards your outstanding balance. Make sure to factor in any balance transfer fees which can be as much as 3-5% of the total balance.

If you always pay your balance in full each month, then a cash back card may be your best option.  When comparing offers, look for a credit card featuring the best combination of a low interest rate, rewards and services to help you earn more for every dollar you spend.

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