Types of Credit Cards

Incentives and Rewards

These days, many credit card companies offer some type of rewards program or incentives. These can include:

  • no balance transfer fees and super-low interest for a limited time
  • a low introductory rate on new purchases and balance transfers for a limited time
  • cash rewards: Cash back as a percentage of your purchase transactions
  • gas and grocery store rewards: Earn cash back or points for using a card at a particular retailer
  • travel rewards: Earn points toward airfare or hotel prices
  • sign-up bonuses: Earn money just for opening an account

Balance Transfers

A balance transfer can help you save money on high-interest debt by moving that debt to a card that charges a lower interest rate specifically for balance transfers. Some cards offer 0% interest for up to 18 months as long as you make the minimum monthly payments. However, many credit card issuers charge a balance transfer fee of between 3% to 5% of the transferred amount. (Tip: Navy Federal and some other financial institutions don’t charge a balance transfer fee.* Be sure to ask.) Transferring a $5,000 debt at a 5% fee would add another $250 to your pre-existing debt.

Paying off one credit card with another can be a financially smart move, especially if it means going from paying 20% interest on your charges to paying 0%. For instance, you would have to make 12 monthly payments of $463.17 to pay off a $5,000 debt at 20% interest. When you transfer that debt to a 0% interest card, your monthly payments drop to $416.67. When you subtract the 5% transfer fee, you still save $258.04 over a year’s time.

The key is to pay off the transferred balance in full before the promotional interest rate expires. If you don’t, the new card may charge an even higher interest rate on the remaining balance than the card you first transferred the debt from.

*Rates are variable and will vary with the market based on Prime Rate.

Cash Advances

You can use your credit card to do more than make purchases. You can also take out cash. You can withdraw funds at a credit union, bank or ATM with your credit card or use convenience checks supplied by the card company.

Borrowing against your credit card can be a quick way to make it through tight times, but be careful! The interest rate on cash advances is often significantly higher than on purchases. Plus, the interest charges start accumulating as soon as you take out the money. In addition, you may pay a transaction fee for the cash advance. This may be a flat rate, a percentage of the withdrawal or a combination of both. Some credit cards have a different credit limit on cash advances than on purchases. You may pay extra fees for going over your cash withdrawal limit.  

Travel Protection

Vacations are supposed to be relaxing, fun adventures, but sometimes things can go wrong. Some mishaps may be covered or reimbursed when you use your credit card to pay for certain travel expenses, like airfare and rental car reservations. You need to check with your credit card issuer to see what types of travel protection, if any, you are entitled to. Examples of travel protection include:

travelinsurance

Travel cancellation insurance: If an emergency, illness or death in the family interferes with your travel plans, you can recoup the costs of non-refundable flights.

Travel delays: Some companies will reimburse you for meal and lodging expenses if your flight is delayed or canceled due to certain conditions, like weather issues. 

Travel accident insurance: If you’re injured or killed while traveling by plane, train, bus or boat while on vacation—and you paid for the ticket with your credit card—you or your survivors may receive a cash payout. Medical problems (such as heart attacks) aren’t covered, although some cards offer a separate travel insurance plan for a fee that covers certain medical expenses during travel.

Rental car collision insurance: A majority of credit cards will cover the cost of fixing damage to a rental car. You don’t need to pay extra for the rental car company’s insurance. 

Lost luggage insurance: Some credit card issuers will reimburse you for items if the airline loses your checked bag.

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