Know Thyself
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Know Thyself

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Know Thyself
There's an array of credit and charge card products available to help you manage your finances with greater ease and convenience. But for the maximum benefit, it's important to choose a card that fits your individual needs.

Consider these questions: Do you have good, bad or no credit? Do you typically pay balances in full or roll them over from month to month? Do you do a lot of traveling, use a specific brand/service or patronize particular stores?

How you answer these simple questions will lend valuable insight to the issue of which type of card will best serve your needs. (But we'll get to that later.) Ultimately, you may discover that you need to change the way you're using your current card, get a different type of card or use a combination of cards. "The various stages in life are different...You may go from being a student to getting married to having kids," says David Chamberlin, a Delaware spokesperson for Chase Card Services, which currently issues 94 million credit cards. "The biggest thing is that the card has to fit your lifestyle."

Daniel F Drummond, a spokesperson for Your Credit Card Companies of Washington, D.C., agrees. According to Drummond - whose organization specializes in providing credit card education for consumers - credit card companies offer a variety of programs to fit just about any need. "Consumers need to decide what they're going to use the card for... It really comes down to personal preference," he says.

Evaluating Your Spending Patterns

The first step to selecting the best card is to study your purchasing and payment habits to determine just how and where you're spending money. Start by pulling out your bank and credit/charge card statements from at least a year back. Then write down what you spent in each of the following categories: fixed expenses, variable expenses and optional expenses.

Next, notate how you paid for each item on the list - whether you used cash or credit, debit or charge cards. Also note whether you made partial or full payments.

If you prefer a more high-tech approach, you can use Quicken or Money to download your financial details straight from your bank and card companies. It doesn't really matter what approach you use for the assessment, the important thing is that you have a game plan for identifying your spending patterns, according to Drummond.

Matching a Card to Your Needs

Once the assessment is done, the third step is to analyze the results. Undoubtedly, you'll notice obvious patterns in your spending style. Now you're ready for the fourth and final step: matching your spending habits with the features of typical credit and charge cards.

If you have bad or no credit, you may be restricted to a secured card that requires collateral in the form of cash, a car, jewelry or anything of monetary value.

"If you pay your balances in full to avoid paying interest," says Chamberlin "a credit card with no annual fee or a longer grace period would be best." You could also consider a charge card or pre-paid credit card, both of which can help you dodge finance charges. However, if you carry a monthly balance, a credit card with a low introductory or fixed APR is your best bet.

Additionally, if you pay your balance in full each month and have good credit, cards that offer cash rebates, discounts and points toward merchandise may be ideal. A good example is a card that gives users 1 percent back in the form of a $25 check or gift certificate after they've spent $2,500. Chase's Starbucks Rewards Card sends regular cash rebates directly to the card. "For some people, that means they won't have to pay for a latte ever again," quips Chamberlin.

If you have young children, the Disney card is a way to be rewarded and get special offers that other individuals aren't getting. Baseball fans might enjoy being rewarded with VIP trips to the dugout of their favorite team. And if you travel a lot, an airline card would be the ticket.

Another option is to consider the brand that you're most loyal to. "If it's a big part of your life, this might be the perfect reward card for you," Chamberlin advises. Other options may be obvious matches, such as gas cards for extensive drivers, retail cards (e.g. Sears), and student or business cards.

Credit Cards Versus Charge Cards Credit Cards Versus Charge Cards
People often use the terms credit card and charge card interchangeably, but there are distinct differences between the two.

Credit cards generally let you make purchases for which you are billed later. Most credit card accounts allow you to carry a balance from one billing cycle to the next. A minimum of 2.5- to 5-percent of the balance is usually due at the end of the billing cycle.

If you pay the full balance by the required date, you won't be charged any interest. But if you make a partial or no payment, you will have to pay interest. Currently, the average annual percentage rate (APR) is approximately 18 percent.

With charge cards, however, you have to pay the entire balance every month. If you don't pay the bill in full - unless the charges are travel expenses on an American Express card - you'll get a one-month grace period. After that, you'll be charged interest that averages about 18 percent. If you fail to pay after about three months, your account will be closed and your bill will be sent straight to the collections department.

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