Clark Howard: Here’s my philosophy on credit cards

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Rewards credit cards
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We talk a lot about credit and credit cards on the Clark Howard Show and here on Clark.com, but with Americans’ credit card debt at or near record highs, I though it was time for a reset.

Why having good credit is so important

First of all, I do think it’s really important for you to have credit. Without credit, you could be punished in many areas of your life.

A lot of potential employers will check your credit report. If it comes back that you don’t have any credit, that’s a huge red flag that could prevent you from getting the job.

The same goes if you’re shopping for home or auto insurance. If you have no credit or bad credit, you’re going to pay higher rates. So even if you like to pay cash for everything, it’s still valuable to have credit.

RELATED: How to improve your credit score 100 points in 30 days

It’s important to remember that getting credit requires you think through how you’re going to use it. If you know that you’re the type of person who is going to use any credit you may get and not be able to pay back your debts, forget everything I’ve said about why you need to have credit. For you, having credit is simply too dangerous and you should live on a cash basis.

If the issue is that you have credit but you’re paying really high interest rates on it, I want you to think about what your plan is to get rid of the debt you have — and to do it at the most affordable rate possible.

Knowing your interest rates is key to using credit wisely

Too often, when I ask people what the interest rates are on their credit lines, they have no idea. Remember that your goal is to pay the most you can against high interest rates and the minimum against the others.

If you know that you are a person who is not typically going to be able to pay off your balance in full each month, the most important thing to consider when you’re getting a new credit card is getting a card with the lowest possible interest rate. A lot of credit unions have cards with really low rates — many in the single digits, under 10%. Most major issuers average around 17%.

Let’s say you’re someone who pays your interest in full each and every month. Then, who cares what your interest is???

Instead I want you to focus on rewards.

RELATED: What is a ‘good’ credit card?

What you should know about airline rewards cards

The rewards cards that most people seem drawn to like bees to honey are the airline miles cards. You pay a big annual fee and they promise you you’re going to be seeing the whole world using that card. That’s baloney, because only a tiny fraction of people use the cards from American, United or Delta that makes it worth spending all that money.

The annual fees tend to be from $100 to $500 on those cards, so you have to spend huge amounts of money to justify that. These tend to work best for people who are self-employed or own their own businesses and can charge enough business expenses to earn hundreds of thousands of airline miles or points every year.

If you’re an individual who flies on a particular full-fare airline regularly, it may makes sense to get the lowest-tier annual fee card offered by that airline because you might get to board earlier, get free bag check or other perks, but otherwise it’s probably best to stay away from those.

RELATED: Rewards credit cards: The pros and cons

My favorite rewards cards are the ones that actually pay you money

No one can tell you where you can and can’t spend your cash. The best cards pay you 2% cash back on everything you do, automatically. That’s a no-brainer!

With any rewards card that’s not cash, think carefully through your charge patterns and whether those cards really give you bang for your charging buck.

More Clark.com credit resources: 

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Clark Howard About the author:
Clark Howard is a consumer expert whose goal is to help you keep more of the money you make. His national radio show and website show you ways to put more money in your pocket, with advice you can trust. More about Clark
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