Types of Credit Cards: Which Ones Are Right for You?

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"At the table in the kitchen, there were three bowls of porridge.
Goldilocks was hungry. She tasted the porridge from the first bowl.
'This porridge is too hot!' she exclaimed.
So, she tasted the porridge from the second bowl.
'This porridge is too cold,' she said
So, she tasted the last bowl of porridge.
'Ahhh, this porridge is just right,' she said happily and she ate it all up."
-- "Goldilocks and the Three Bears" fairy tale

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If you would like the convenience of some plastic in your pocket, so that you can pay for expenses as they arise without having to keep getting cash from your bank, just about any credit card will do the trick. But the thousands of different credit cards that exist won't all serve you equally well. For best results, find the card(s) that are just right for you, given your needs, your preferences, and your spending habits.

There are different types of credit cards -- Visa, MasterCard, Discover, and other major cards offered by a wide range of banks -- with different features. Following is a review of the top categories, along with examples of the best features to look for in them. 

Balance-transfer and low-interest-rate cards

First off, are you carrying a lot of credit card debt? If so, you're on dangerous financial ground. Spending most or all of the extra dollars you have on interest payments instead of being able to use them to build a war chest of money for retirement can jeopardize your future financial security. Clearly, paying off credit card debt should be a priority for anyone in debt.

That's much easier said than done, though, because it can be hard to make any progress if you're saddled with interest rates of 16%, 20%, or more. Enter balance-transfer credit cards and low-interest rate credit cards, which can be very useful in the battle to pay down debt. A great balance-transfer credit card can give you some breathing room, charging you no interest for a bunch of months while you work hard to pay off your debt, while a solid low-interest-rate credit card will help you spend less on interest payments than you would with other cards.

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You can find good cards in this category with many or all of the following features:

  • Zero-percent interest. Balance-transfer cards will charge you no interest for anywhere between about 15 and 21 months. The longer the period, the better, but even 15 months can be enough, depending on your situation.

  • No balance-transfer fee. Some cards will charge you about 3% or 4% of the amount you transfer from another card. That can still be worth it sometimes, but favor cards that charge no such fee, at least in the initial period when you make your transfer.

  • No annual fee. Most credit cards don't charge an annual fee.

  • No penalty APR. A penalty APR is what happens when card companies raise your interest rate, often to 25% or more, if you're late paying a bill. Plenty of cards don't have this feature, and it can be very dangerous if it's there.

  • Low interest rates once the initial 0% teaser rate expires.

  • Access to your FICO credit score. As you work to pay down your debt, it can be helpful (and motivating!) to be able to check your credit score now and then, watching it increase.

Rewards and cash-back credit cards

Those who are not deep in debt are in a great position, because they can actually make money or enjoy other rewards from their credit cards. Enter rewards credit cards and cash-back credit cards, which overlap quite a bit. Getting cash back, after all, is certainly a reward. And many rewards cards issue "points" that can be redeemed in place of cash. There are many great cash-back credit cards worth your consideration, but note that each has its own terms and conditions and often some limitations on rewards that can be earned. Most offer additional benefits and perks, so take a close look at any card of interest.

You can find good cards in this category with many or all of the following features:

  • No annual fee.

  • No penalty APR. 

  • 2% cash back overall on your purchases with the card.

  • Up to 5% or 6% back on certain categories, such as supermarket spending. Some cards have pre-set cash-back rates for certain categories, while others rotate categories that earn extra-big rewards every three months -- sometimes even letting you choose the categories.

  • Low interest rates, in case you end up carrying some debt for a short while.

Do some research into the different cards in this category, to get a good idea of the range of cards out there. Think about where you spend the most money, because there may be cards well suited to those venues. If you spend a lot at Amazon.com, for example, you can get a card that pays you 5% cash back there -- which can really add up. Other stores with associated credit cards include Target, Costco, Gap, Kohl's, Lowe's, Staples, TJX, Toys R Us, and Wal-Mart.

There are other possible perks, too. Some shopping cards might offer free shipping on items purchased at the sponsoring retailer, while others might let you return items without a receipt or will donate money to charity whenever you use the card.

Travel credit cards

If you travel a lot, give some consideration to travel credit cards, which are essentially rewards cards focused on the travel arena. Some are dedicated to one airline or one hotel company, offering benefits and rewards when you frequent that company. Others are broader, offering a range of travel-related benefits and rewards from a wide array of companies.

The best travel credit cards will have some or all of the following features:

  • No annual fee.

  • No foreign transaction fees. Without this feature, if you spend money abroad or with a foreign-based retailer, you'll see currency-exchange-related fees on your statement.

  • No penalty APR.

  • Points or cash offered when you spend money on travel or restaurants. That can make your vacations a little less costly, as you can save on spending on airfare, hotels, car rentals, cruises, and more.

  • Big sign-up bonuses. Travel credit cards are famous for offering big sign-up bonuses, with the magnitude of the bonus fluctuating over time. For example, if a card offers 50,000 "points" if you spend a certain sum within your first three months, those points could be worth $500 or more in travel value. If you're interested in a particular card, you might investigate how big its bonus is, and try to figure out whether it might be offering a bigger bonus soon.

  • Low interest rates.

Some travel cards offer other perks, too, such as access to airport lounges.

Don't just sign up for and use any old credit card. By applying a little strategy and choosing carefully, you might save hundreds or thousands of dollars in interest or earn hundreds or thousands of dollars in rewards or cash back.

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Selena Maranjian owns shares of Amazon and Costco Wholesale. The Motley Fool owns shares of and recommends Amazon, Costco Wholesale, MasterCard, and Visa. The Motley Fool recommends Lowe's and The TJX Companies. The Motley Fool has a disclosure policy.