In the second quarter of 2021, credit card balances in the U.S. rose by $17 billion. The total amount of debt that American consumers held at the end of June was a whopping $14.96 trillion, reaching an all-time high.
Though having more credit card debt than you can handle can be overwhelming, stressful, and, frankly, kind of dire, responsibly having credit cards is an essential part of financial health. Credit cards offer a number of benefits that can help keep your personal finances where they want to be.
That being said, not all credit cards are the same and some of them serve different purposes.
Let’s take a look at the different types of credit cards so you can make an informed decision about which types are best for you.
Unsecured Credit Card
This is the most common type of credit card. You don’t have to deposit any cash to be used as collateral for this type of card. When used responsibly, this type of card can be used to build credit. Cash back and travel rewards cards are both types of unsecured credit cards.
Secured Credit Card
This can be a good option for people who don’t have a credit history or who need to improve their credit. You usually have to put down a deposit, the amount of which is usually equal to your credit limit.
Travel Rewards Credit Card
If you are a person who is constantly dreaming about jet-setting around the world, then travel rewards cards might be the best reward credit cards for you. Sometimes these cards have an annual fee, so that’s something you’ll want to look into before applying. These cards usually work by offering programs that allow you to accrue points or miles that can then be redeemed at hotels or for flights.
Balance Transfer Credit Card
If you are already carrying credit card debt, it can seriously impact your financial health. One way that people help dig themselves out from dealing with high-interest rates on credit card debt is by applying for a balance transfer card. Basically, you can use these cards to consolidate your debt from one credit card company to a different credit card company. Usually, these cards offer a 0% introductory APR (annual percentage rate) for a period of time for balance transfers. This can help you get some breathing room from interest and help you get on top of debt.
This is only a good idea, though, if you will be able to pay off the debt before the introductory period expires. Otherwise, your debt will again start being owed with a high-interest rate. You can learn about another way to consolidate credit card debt.
Cash Back Rewards Credit Card
This type of card lets you earn points when you use your credit card. You can usually redeem these points for cash back, a statement credit, or gift cards. If you are budget-savvy and looking for a credit card, this type of option might be best for you. Some cards have bonus categories where you can earn more cashback, while others might offer a flat percentage of your purchases.
Gas Rewards Credit Card
Do you drive for work or have a long commute? If so, you might consider getting a gas rewards card. These cards usually offer rewards for gas purchases. Sometimes these cards have restrictions about how many points you can earn. They also sometimes have bonus rewards you can earn during certain times of the year.
0% Intro APR Credit Card
Compared to other kinds of debt, credit card interest rates can often be fairly high. The APR for credit cards is typically somewhere between 15% and 23%.
However, some cards offer introductory APR rates of 0%. This can help consumers who are looking to make a big purchase and want to have some time to pay it off.
With these cards, the APR does eventually go back up to a normal, high interest rate. You will definitely want to read the fine print of any credit card you sign up for because they aren’t always straightforward in the marketing materials about all the details.
Much like a balance transfer card, this is only a good idea if you plan on paying back your debt before the introductory period ends. Otherwise, you could just find yourself in more crippling credit card debt.
Student Credit Card
College students usually don’t have much in the way of credit history if they have any. In order to help them build their credit from the ground up, student credit cards can be a useful tool. The credit limit is typically fairly low though these cards are fairly easy to qualify for. Student credit cards usually have higher interest rates and are sometimes secured credit cards.
Sometimes big retailers issue cards themselves, while other times they partner with a big bank. There are both open loop and closed loop retail cards. Open-loop cards are backed by a major credit card network, while closed-loop cards can only be used at the retailer they are issued by.
Closed-loop cards can be a reasonable way to build credit because they are easier to qualify for. however, they usually have high-interest rates and low credit limits, so it’s important to pay attention to this.
Understanding the Types of Credit Cards Can Help You Make the Right Decision For Your Personal Finances
As you can see, there are a lot of different types of credit cards to choose from. While having credit cards can be an important component of building your credit and improving your financial health, it’s all too easy to fall behind on credit card debt. For this reason, it’s a good idea to educate yourself regarding the basics of personal finances before taking on more debt than you know how to handle.
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