Now more than ever, banks market credit cards toward millennials. The economy relies on consumer credit to keep it ticking along. And banks have a seemingly endless supply of money to lend out to those who are both acceptable to it and creditworthy. One of the favorite tools banks have to lend out money, quickly, are credit cards.
The #1 thing Millennials don’t understand about credit cards is how to take advantage of the features and terms of their credit cards offered by their financial institutions. Features and Terms are such things as the interest rate charged (I.e., for cash advances and purchases), repayment schedules, perks, points, cash back, and so on. While Millennials tend to focus on the “What’s in it for them,” i.e., How many airline points the credit card provides, they tend to overlook the pieces that cost them money.
When used correctly, and part of a sound financial plan, including having an emergency fund, credit cards can be a powerful financial tool that offers the borrower perks, points, cashback, and, most importantly, a free loan- albeit for a short period. And when the statement gets generated at the end of the period, the borrower generally has 1-4 weeks to pay “the amount due,” which is the absolute minimum. And the banks hope you ONLY pay this minimum.
Credit Card Terms & Features
Low-Interest Rate Credit Cards
Millennials carry an average $27,900 balance on their credit cards. As a result, the interest rate could be the single most important feature of a credit card, if you carry a balance. While in general, it doesn’t make much financial sense to carry a balance, from time to time, this is just not a possibility. If carrying a balance is a much, look to a low rate card. These are ideal for those who need to keep a balance. But buyer beware! Many low-rate cards sit around 15-18% APR. In my opinion, this is not low interest. Find one that offers an ongoing interest rate of roughly half that. Some banks offer these products as “Personal Lines of Credit with Visa/Mastercard access.” If that is not possible, consider performing a balance transfer hack.
Balance Transfer Cards
Balance transfer cards are rather easy to obtain as banks often fight for new credit card customers. As of this writing, I was able to find three credit cards that offer zero percent APR for 18 months on balance transfers. Balance transfer credit cards can be valuable tools for millennials to pay off existing high-interest debt. How does it work? Apply for a new card, perform the balance transfer (Effectively paying off your higher-interest debt), and then pay it down as aggressively as possible during the introductory period.
If you can’t pay it fully off before the introductory period is over, consider applying for a different card with similar balance transfer features, and repeat the balance transfer once again. Rinse and repeat until you’ve paid off the debt. There is one “Caveat” that needs to be known: The balance transfer fee. The balance transfer fee is a one time fee that can range from 0-5% – and is an upfront charge on the entire balance transferred. For instance, if the balance transfer amount is $5,800 and the balance transfer fee is 3%, then the transfer fee is $174 – of course, it’s far less than what you might pay with a traditional credit card.
Travel “Points” Cards
Many companies offer “points” cards tied to airlines. Seek out cards that provide the most flexibility. For example, can the points card linked to my favorite airline, or can I use those points on another airline? And are those points easily useable? Some airlines are easier to book award travel than others. It’s essential to do your research in advance.
These cards are ideal for those who don’t travel much and keep a low balance. Typical cash back cards offer between 0.5-4% cashback on purchases. Keep in mind some credit cards only provide an attractive rate on specific categories, such as groceries. If you can exploit these categories, by all means, go ahead.
No Foreign Transaction Fee Cards
For those who frequently purchase in currencies other than USD, this can be very helpful. Foreign transaction fees can run upwards of 2.5%.
No Annual Fee
This is a necessary evil. The best credit cards will often come with some yearly fee. If you are unsure, just consider the value in exchange. Are you getting value for that annual fee? If not, consider closing the account or switching to a different card. One feature of credit cards that come with a higher annual fee is that they often come with useful insurances. For example, some coverages may include Travel Medical, Car Rental (Loss of use, collision), Extended warranty, and so on.
There is often not a “one card fits all” for everyone. For that reason, I like to have a few credit cards that I can use in the situation that gets me very best terms AND features for my purchasing pleasure.
What’s in my wallet?
I keep a cashback card that also offers no foreign transaction fee as I frequently commute between USA/Canada/Europe. Second, I keep a balance transfer card that gives me a 0% interest rate & 1-2% balance transfer fee for on balance transfers for 12 months. And last, I keep a line of credit VISA at 3.5-4% (prime +), so that if I need it, I can access cash very cheaply.