What kind of spender are you? The Stasher, the Splasher… the Ignorer? Depending on your spending habits and needs, certain types of credit cards may be a better option for you than others.

Read on for some handy tips from our SHARE advisers, on how to choose (and use wisely) your next credit card. But first, an all-important word of caution.

Keeping credit card debt at bay

You may have heard the terms ‘good debt’ and ‘bad debt’ before. In short, not all debt is created equal: it all depends on how well you manage it, and whether borrowing money helps you achieve goals that would otherwise be out of reach. 

As a rule of thumb, ‘good debt’ is defined as money owed for things that can help you boost your wealth over time. For example, if you take out a mortgage to buy your home, you’re buying an asset that is likely to grow in value at some point. Plus, you’re securing a roof over your head, rather than spending on rent.

On the opposite side of the spectrum, ‘bad debt’ is when money is used to buy a depreciating asset (like a car) or comes with high interest (like credit card debt).

Now, credit cards aren’t intrinsically ‘bad’. When used properly, they can be a valuable tool when it comes to budgeting. The key thing is to pay them in full each month, to avoid getting trapped by high interest and fees. So, let’s see which types of credit cards are available.

What types of credit cards are out there?

There are many options available in the market, so it’s always important to understand what you’re signing up for. In a nutshell, based on their interest rate, annual fee and rewards value, credit cards can be:

• Low-fee
• Low-rate
• Rewards credit cards (including flight rewards cards).

What are your spending habits?

Now, let’s look at how the different types of cards align with your spending habits.

• If you’re a light spender or use your card sporadically (perhaps only for some big-ticket items, like new pieces of furniture for your home, or a new camera), a low or no-fee card may be a good option. Provided you’re good at budgeting and are consistent in repaying your balance in full every month, you’re less likely to need a low-interest-rate card. Plus, why pay a high ongoing fee if you’re barely using the card, anyway?
• If you’re a frequent credit card user but don’t always pay the balance in full (or aren’t as punctual as you may like to be), then a low-interest-rate card may make debt more manageable for you. But remember, paying off the balance each month is always a good thing – not only will you save on interest overall, but it can also help you improve your credit score. Our SHARE advisers recommend creating a sound budget, to focus on repaying your credit card debt faster and regularly.
• Like being rewarded? It’s hard to resist the appeal of all the special offers, extra points and perks you can earn with a rewards credit card. The more you use the card, the more perks you can get. But keep in mind that rewards cards often entail high fees and high-interest rates. That’s why they can be a good option for frequent spenders who pay down their balance consistently every month.

Need help?
Remember: at any amount, carrying too much credit card debt can get in the way of other personal or financial goals.

If you’d like to manage debt more effectively or need a realistic action plan to reduce your debt load, contact our SHARE advisers. We can help you take a good look at your finances and define an appropriate strategy.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current development or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.