More than a year after the pandemic hit, consumers are adopting all sorts of new financial habits, including shopping around for a new credit card.
Data from J.D. Power's 2021 Credit Card Shopping Study found that the welcome bonus ranks as the top reason why people are signing up for a new credit card with consumers eager to earn rewards. But others are looking to credit cards as a financial crutch.
According to the June 2021 J.D. Power Banking and Payments Insight, nearly a quarter (23%) of respondents said that the pandemic was a factor in their decision to shop for a new card, with 4% pinpointing it as the primary reason. J.D. Power notes that this segment of new credit cardholders are revolvers, or customers who carry balances month to month and pay them off over time. They report being worse off financially in 2021, with credit scores of 659 and below.
While millions of Americans' finances certainly took a huge blow during the pandemic, leaving them worse off a year later, carrying a balance is a surefire way to dig yourself into steep debt.
Here's why carrying a balance on your credit card is a horrible habit
Credit cards charge interest, known as an APR, if you carry a balance past your payment due date. Unlike the interest you likely pay on a mortgage or auto loan, however, the rate you pay on a revolving credit card balance is notoriously high, usually in the double digits.
The average credit card APR is 16.30%, according to the Federal Reserve's most recent data. And because the majority of credit card issuers compound interest on a daily basis — meaning your interest is added to your principal (original) balance at the end of every day — that debt is costing you more and more the longer it goes unpaid.
To avoid ever having to pay a high interest rate on your credit card, make it a habit to never carry a balance.
Think you'll need to carry a balance? Consider these credit cards
When you are strapped for cash, paying off your balance in full each month may be easier said than done.
If you think you may end up carrying a balance at some point, consider a credit card with low interest. It's not ideal to have a balance, but going with a low-interest card can at least save you some money.
Some of the best low interest credit cards we found include the Capital One VentureOne Rewards Credit Card (see rates and fees) and the U.S. Bank Visa® Platinum Card. If you can qualify, your best bet is to get a credit card with an introductory 0% APR offer, since this will save you the most money and you won't pay any interest until the intro period is over.
Capital One VentureOne Rewards Credit Card
Rewards
5 Miles per dollar on hotel and rental cars booked through Capital One Travel, 1.25X miles per dollar on every purchase
Welcome bonus
Earn a bonus of 20,000 miles once you spend $500 on purchases within 3 months from account opening, equal to $200 in travel
Annual fee
$0
Intro APR
0% intro APR on purchases and balance transfers for 15 months
Regular APR
19.99% - 29.99% variable
Balance transfer fee
3% for the first 15 months or at a promotional APR that Capital One may offer you at any other time. No fee for amounts transferred at the Transfer APR
Foreign transaction fee
None
Credit needed
Excellent/Good
See rates and fees. Terms apply.
U.S. Bank Visa® Platinum Card
Rewards
None
Welcome bonus
None
Annual fee
$0
Intro APR
0% for the first 21 billing cycles on balance transfers and purchases
Regular APR
18.74% - 29.74% (Variable)
Balance transfer fee
Either 3% of the amount of each transfer or $5 minimum, whichever is greater
Foreign transaction fee
3%
Credit needed
Excellent/Good
See rates and fees. Terms apply.
If you already carry a large balance and pay high interest, look into transferring your debt to a balance transfer credit card so you can chip away at your credit card balance while interest stops accruing. The U.S. Bank Visa Platinum Card's intro 0% APR offer for the first 18 billing cycles (after, 18.74% - 29.74% variable APR) applies to balance transfers as well.
Or consider the Citi Double Cash® Card, which offers an interest-free period for the first 18 months on balance transfers (after, 19.24% - 29.24% variable APR). Plus, cardholders earn 2% cash back: 1% on all eligible purchases and an additional 1% after paying their credit card bill.
Citi Double Cash® Card
Rewards
Earn 2% on every purchase with unlimited 1% cash back when you buy, plus an additional 1% as you pay for those purchases. To earn cash back, pay at least the minimum due on time. Plus, for a limited time, earn 5% total cash back on hotel, car rentals and attractions booked on the Citi Travel℠ portal through 12/31/24
Welcome bonus
Earn $200 cash back after you spend $1,500 on purchases in the first 6 months of account opening. This bonus offer will be fulfilled as 20,000 ThankYou® Points, which can be redeemed for $200 cash back.
Annual fee
$0
Intro APR
0% for the first 18 months on balance transfers; N/A for purchases
Regular APR
19.24% - 29.24% variable
Balance transfer fee
For balance transfers completed within 4 months of account opening, an intro balance transfer fee of 3% of each transfer ($5 minimum) applies; after that, a balance transfer fee of 5% of each transfer ($5 minimum) applies
Foreign transaction fee
3%
Credit needed
Fair/Good/Excellent
See rates and fees. Terms apply.
Read our Citi Double Cash® Card review.