Choosing What's Best for You

Before you choose a credit card, think about how you intend to use it. Do you plan to pay off the balance every month or carry a balance from one month to the next? If you pay the balance every month, the annual fee and other charges may be more important than the annual percentage rate (APR), so you should look for a no-fee or low-fee card. Even if the issuer charges an annual fee, you may be able to get it waived by calling and asking them to remove it. If you carry a balance and pay for your purchases over time, the APR and the method of computing your balance are most important, so you'll want to look for the lowest interest rate and the best grace period. Getting a rebate or frequent flier miles is usually not a good reason to choose one card over another unless everything else is equal. You'd have to do a lot of flying to build up enough frequent flier miles to pay for the fee that often accompanies these cards.
Beware of teaser rates, which sound tempting because the introductory rate is much lower than the going rate on most cards. The downside is that if you have a balance on the card when the introductory rate ends, you could be in worse shape than you were with a higher rate, depending on how high the rate spikes at the end of the introductory offer.

Interest rates on cards that award frequent flier miles for certain purchases are usually several percentage points higher than regular credit cards, so don't carry a balance on them. If you pay even one day late, you're hit with finance charges and you may lose any miles earned that month.

In general, if you have a good credit history and you're paying more than 7 or 8 percent above the current prime interest rate on your VISA or MasterCard, you're paying too much. Considering that the prime rate is in the single digits, lenders that charge 16 to 21 percent interest on credit card balances are gouging you. A few percentage points in the interest rate could save you thousands of dollars depending on your balance and how quickly (or slowly) you pay it off.
If you can obtain a lower-interest credit card, you can usually use cash advances to pay off the balance on your other credit cards and transfer this debt to the lower-rate card. Be sure to read the fine print, though. The interest rate on cash advances and transferred balances is usually much higher than the standard interest rate, so be sure you can pay off the cash advance before the introductory offer runs out.
If you have a questionable credit history, you'll pay higher interest rates. Lenders try to reduce their risk by increasing the interest charges on higher-risk debts. The higher the rate, the faster your debt will grow, and the harder it will be for you to pay it off.