A simple, flat-rate cash-back credit card is a good way to get established and learn whether credit cards are right for you

This article is reprinted by permission from NerdWallet

As extra banks work to improve accessibility to bank cards and introduce playing cards that base eligibility on components apart from credit score scores, there are sure to be extra new candidates. If you happen to’re among the many shoppers new to bank cards, you is likely to be each intrigued and cautious. A no-fee, flat-rate cash-back card could possibly be the reply to your issues.

Conflicting emotions about bank cards are comprehensible. Perhaps you grew up in a household that didn’t use bank cards or know individuals who have gotten into debt hassle with them. A latest NerdWallet survey discovered that respondents had a mean of $6,741 in bank card debt in 2020.

“Bank cards could have a foul popularity, however they really are nice financial-planning and money-management instruments — as long as you employ them appropriately,” Paul Golden, spokesman for the Nationwide Endowment for Monetary Schooling, mentioned in an e-mail.

If you happen to’ll be a kind of first-time candidates for a bank card, right here’s why a no-fee, flat-rate cash-back card might be just right for you.

Why no charge?

Many individuals dislike the concept of paying an annual charge for a rewards bank card, and there’s cause: It reduces the general annual worth of your rewards. For instance, if you happen to pay an annual charge of $100 in your card, however you solely earn about $100 in money again with it annually, you’d simply be breaking even.

no-fee credit card, then again, is a low dedication. If you find yourself disliking the cardboard and desire a completely different one, otherwise you resolve bank cards will not be for you, you may cease utilizing it with little consequence. You’re not out any cash.

As a brand new cardholder, although, you’ll need to monitor your purchases carefully. Do you end up overspending as a result of it’s really easy to pay with a bank card? In that case, bank cards won’t be the most effective concept for you.

Additionally see: Tracking spending was a wake-up call: How this couple paid off a $71k debt in 5 years

Notice additionally that “no annual charge” doesn’t imply cost-free. You continue to might owe cash if you happen to don’t repay the steadiness every month otherwise you incur a late-payment charge, for instance.

Why flat-rate rewards?

Simplicity is essential with a primary card, and it doesn’t get less complicated than flat-rate rewards. With these playing cards, you’ll usually get not less than 1.5% money again on all of your purchases. You would possibly even discover a card that pays 2% money again.

That rewards price won’t sound like a lot, nevertheless it provides up. Let’s say you usually spend $1,500 per thirty days. If you happen to put that quantity on a flat-rate 2%-back card, you’ll get $360 again yearly. That’s a big quantity of free cash annually for spending you’ll ideally be doing anyway.

Some cash-back playing cards supply a better share again, like 3% or 5%, however solely on purchases from sure retailers, corresponding to eating places or fuel stations. However these purchases would possibly account for only a small portion of your total spending, which means a less complicated flat-rate card could possibly be a better option. Additionally, bonus classes solely add complexity, which you don’t need in your first card.

Study extra: Is a travel rewards credit card right for you?

Why money again?

“If you’re on the lookout for a card with incentives, take into account one that gives flexibility and has rewards you’ll use,” Golden mentioned.

Money is the most effective rewards forex by way of flexibility, as a result of you may spend U.S. {dollars} on nearly something. It’s usually rewarded within the type of an announcement credit score, so that you cut back your subsequent month’s invoice. However you can too get money rewards as a financial institution deposit or paper verify with some cash-back playing cards.

In contrast, factors and miles might be devalued by the issuer. It would require you to redeem extra of its model’s forex (e.g., Citi ThankYou factors) for the acquisition you need, whether or not that’s reward playing cards, merchandise or an airline ticket.

Lengthy-term use

If you happen to discover you want utilizing rewards bank cards and graduate to including a card with bonus classes, you may nonetheless use the no-fee, flat-rate cash-back card.

Additionally see: My husband has $75K on his credit card and plans to spend $8K on sporting events. What can I do? Am I on the hook if he dies?

A well-liked technique is to make use of the bonus-categories card for spending within the classes, corresponding to eating places or fuel stations. After which use your trusty flat-rate rewards card for all the things else.

Extra From NerdWallet

Gregory Karp writes for NerdWallet. E-mail: Twitter: @spendingsmart. | A easy, flat-rate cash-back bank card is an efficient approach to get established and study whether or not bank cards are best for you


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