"You don't build wealth with credit card rewards and airline miles. You can't beat the credit card companies at their own game."
-- attributed to Dave Ramsey
Whoever offered that opinion is both right and wrong. Credit cards are not wealth-building devices. They can be handy and helpful devices, though. You don't have to give credit card companies the upper hand when you use credit cards. They'd love to collect hundreds or thousands of dollars from you in interest and fees, but you can avoid all that and instead reap rewards by using the cards that best fit your situation and spending habits.
If you want to own the best credit cards, look into who has the best available deals now, comparing rates, rewards, and more. Here are some recommended top-rated credit cards, along with some tips for finding great cards.
Kinds of cards: Which are best for you?
First, understand that certain categories of credit card will serve you better than others, depending on your financial situation.
If you're carrying a lot of credit card debt, your future financial security is in jeopardy and you should pay off credit card debt as soon as you can. Balance-transfer credit cards and low-interest-rate credit cards can be very helpful in that mission. Great balance-transfer credit cards 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 great low-interest-rate credit cards can help you spend less on interest payments than you would with other cards.
If you're not mired in high-interest-rate debt, you can collect cash or rewards by using your credit cards. There are many great cash-back credit cards worth considering (many of which also offer alternate rewards, such as discounts on shopping), 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.
If you do a lot of shopping, think about where you spend the most money, because many retailers offer cards that give you discounts when you shop with them. 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. (Spend $250 per month at Amazon? That's $3,000 per year, enough to earn $150 back.) Other stores with associated credit cards include Target, Costco, Gap, Kohl's, Lowe's, Staples, TJX, Toys R Us, and Wal-Mart. Some shopping cards might offer other perks, too, such as 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.
Finally, if you travel a lot, give some consideration to the best travel credit cards, which are essentially rewards cards focused on your travel-related spending. 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.
Look for the best features
So how can you find the best cards among thousands of contenders? Well, there's no card that's perfect for everyone, but here's a guide to some valuable features to look for:
- No annual fee. Most credit cards don't charge an annual fee, so this shouldn't be hard. Note, though, that if a card charges, say, $99 per year, and will deliver, say, $300 or more in value, then the fee can be worth it.
- 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. You might have to look in a card's fine print to see whether there's a penalty APR.
- Zero-percent interest. If you're looking for a good balance-transfer card, aim for one that will charge you no interest for anywhere between about 15 months and 21 months. The longer the period, the better, but even 15 months can be enough depending on your situation.
- No balance-transfer fee. Again, among balance transfer cards, some will charge you about 3% to 5% 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.
- Low interest rates. Paying off your bill in full each month is the best way to use a credit card, but if there's a chance you will occasionally be carrying a balance, you should favor cards with an interest-rate range that's low relative to others. If you're getting a card with an initial 0% rate, find out what the rate is likely to be once that teaser rate expires.
- 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.
- Access to your FICO credit score. It can be helpful to be able to check your credit score now and then, especially if you're working on paying off debt and increasing your score. Many cards these days let you see your score.
- Cash back -- or points of rewards that can be earned as you spend with your card. You can find cards that pay you 2% cash back overall on your purchases, and ones that offer 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.
- Big sign-up bonuses. Many credit cards offer significant sign-up bonuses, with the magnitude of the bonus fluctuating over time. For example, a card might offer 50,000 "points" if you spend a certain amount within your first three months, and those points could be worth $500 or more in value when redeemed. 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.
Recommended and top-rated credit cards
Here are a few outstanding credit cards in several categories. You'll find even more candidates for consideration through some of the preceding links.
Great balance-transfer or low-interest-rate cards:
- BankAmericard: BankAmericard charges no annual fee -- and no balance-transfer fee, either, for transfers made within 60 days of opening your account. Its initial APR is 0% for the first 15 billing cycles for transfers made within 60 days of opening the account. (Read our full BankAmericard review.)
- Barclaycard RingMasterCard: This card charges no balance-transfer fee (and no annual fee or foreign transaction fees, either), and its initial APR is 0% for the first 15 months for transfers made within 45 days of opening the account. The card also doesn't impose a penalty APR. (Read our full Barclaycard Ring MasterCard review.)
- Chase Slate: This card offers a 0% initial APR for balance transfers and purchases during the first 15 months once the account is opened. Better still, there's no balance-transfer fee on transfers made within the first 60 days. There's no annual fee and no penalty APR, either. (Read our full Chase Slate review.)
Great cash-back and rewards cards:
- Amazon Prime Rewards Visa: This card, for Prime members, charges no annual fee, and no foreign transaction fees, either. You'll receive a $70 Amazon.com gift card upon signing up and will then earn a whopping 5% cash back on all Amazon purchases, along with 2% back on spending at restaurants, gas stations, and drugstores, and 1% back on everything else. (Read our full Amazon.com Prime Rewards Visa review.)
- Chase Freedom Unlimited: This card offers a solid 1.5% cash back on all purchases, with no limit. You can collect a $150 bonus once you spend $500 in your first three months. There's no annual fee, either. (Read our full Chase Freedom Unlimited review.)
- Citi Double Cash Card: The Citi Double Cash Card pays you 1% cash back when you make a purchase -- and then another 1% back when you pay off that sum, for a total of 2% cash back. If you tend to charge around $1,500 in total per month, you're looking at $360 in cash back per year. Better still, there's no annual fee. (Read our full Citi Double Cash Card review.)
Great travel cards:
- Chase Sapphire Preferred: This card awards you 50,000 points once you spend $4,000 on the card in your first three months. Those points are worth $625 in travel expenses when you redeem them through Chase Ultimate Rewards. The card can also offers double points for spending on travel and meals at restaurants. There's a $95 annual fee -- but it's waived in the first year. (Read our full Chase Sapphire Preferred review.)
- Starwood Preferred Guest Credit Card from American Express: This card can serve you well if you spend a lot of time in hotels. It offers 25,000 bonus Starpoints after you spend $3,000 on the card in the first three months. The annual fee is $95, which is waived in the first year. You'll earn Starpoints on all spending, and five times as many Starpoints when you spend at participating Starwood hotels. (Starwood brands include W Hotels, Westin, Sheraton, and more -- and Starwood was recently bought by Marriott.) You can spend Starpoints at gobs of qualifying hotels worldwide and the points can be transferred to most major airline loyalty programs, too.
- BankAmericard Travel Rewards: This card is valuable with any airline or hotel, anytime. You'll receive 20,000 bonus points after spending at least $1,000 on the card in the first 90 days -- and those points are worth $200 in a statement credit toward travel purchases. There's no annual fee and no point expiration to worry about. If you have an active Bank of America checking or savings account, you can earn an extra 10% in points on every purchase. (Preferred Rewards clients can collect a bigger bonus, of 25% to 75%.) There are no foreign transaction fees, either. (Read our full BankAmericard Travel Rewards review.)
While you won't build great wealth with credit cards (unless you own a credit card company), you can certainly make the most of carefully selected cards, saving or earning hundreds or thousands of dollars. Remember, too, that many of the best credit cards only go to people with high credit scores, so it can be worth spending a little time working on increasing your score.
Selena Maranjian owns shares of Amazon, American Express, Costco Wholesale, JPMorgan Chase, and Marriott International. The Motley Fool owns shares of and recommends Amazon, Costco Wholesale, and Marriott International. The Motley Fool recommends American Express, Lowe's, and The TJX Companies. The Motley Fool has a disclosure policy.