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 and the U.S. Bank Visa® Platinum Card. If you can qualify, your best bet is to get a credit card with an introductory APR offer, since this will save you the most money and you won't pay any interest until the intro period is over.
The Capital One VentureOne Rewards Credit Card earns transferrable miles, which is a stand-out benefit for a no-annual-fee card.
- You can transfer miles to over 15 Capital One partners, including Emirates Skywards, Choice Privileges and Singapore Airlines KrisFlyer
- No annual fee
- Limited bonus spending category that only applies to certain Capital One Travel bookings
- No travel credits and limited travel protections
Highlights
Highlights shown here are provided by the issuer and have not been reviewed by CNBC Select's editorial staff.
- Earn a bonus of 20,000 miles once you spend $500 on purchases within 3 months from account opening, equal to $200 in travel
- $0 annual fee and no foreign transaction fees
- Earn unlimited 1.25X miles on every purchase, every day
- Miles won't expire for the life of the account and there's no limit to how many you can earn
- Earn 5X miles on hotels, vacation rentals and rental cars booked through Capital One Travel
- Use your miles to get reimbursed for any travel purchase—or redeem by booking a trip through Capital One Travel
- Transfer your miles to your choice of 15+ travel loyalty programs
- Enjoy 0% intro APR on purchases and balance transfers for 15 months; 18.49% - 28.49% variable APR after that; balance transfer fee applies
- Top rated mobile app
Balance transfer fee
3% for the first 15 months; 4% at a promotional APR that Capital One may offer you at any other time
Foreign transaction fee
None
- Best-in-class intro-APR offers for purchases and balance transfers
- No rewards
- No welcome bonus
Information about the U.S. Bank Visa® Platinum Card has been collected independently by Select and has not been reviewed or provided by the issuer of the card prior to publication.
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, 18.24% - 29.24% 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, 17.49% - 27.49% variable APR). There is an intro balance transfer fee of 3% of each transfer (minimum $5) completed within the first 4 months of account opening. After that, your fee will be 5% of each transfer (minimum $5). Plus, cardholders earn 2% cash back: 1% on all eligible purchases and an additional 1% after paying their credit card bill.
The Citi Double Cash® Card is one of the best no-annual-fee cash-back cards thanks to its straightforward rewards structure.
- Balance transfers get a long intro APR
- Generous flat-rate cash-back rewards structure
- No annual fee
- Travelers face a foreign transaction fee
- Intro APR only applies to balance tranfer
Highlights
Highlights shown here are provided by the issuer and have not been reviewed by CNBC Select's editorial staff.
- 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.
- 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, earn 5% total cash back on hotel, car rentals and attractions booked with Citi Travel.
- Balance Transfer Only Offer: 0% intro APR on Balance Transfers for 18 months. After that, the variable APR will be 17.49% - 27.49%, based on your creditworthiness.
- Balance Transfers do not earn cash back. Intro APR does not apply to purchases.
- If you transfer a balance, interest will be charged on your purchases unless you pay your entire balance (including balance transfers) by the due date each month.
- There is an intro balance transfer fee of 3% of each transfer (minimum $5) completed within the first 4 months of account opening. After that, your fee will be 5% of each transfer (minimum $5).
Balance transfer fee
There is an intro balance transfer fee of 3% of each transfer (minimum $5) completed within the first 4 months of account opening. A balance transfer fee of 5% of each transfer ($5 minimum) applies if completed after 4 months of account opening.
Foreign transaction fee
3%
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Information about the U.S. Bank Visa® Platinum Card has been collected independently by CNBC and has not been reviewed or provided by the issuer of the card prior to publication.
