Not everyone will have all payment card options available to them—for example, if you don’t have a positive credit history, you can’t get a credit card but many consumers may have more than one option. Choosing the best card for any transaction requires thinking about your goals.
Cost. It’s safe to say that all cardholders would like to avoid, or at least minimize, transaction fees. To do that, you need to understand the fee policies of both the card issuer and the merchant. For example, credit card issuers charge a transaction fee that could be as much as 5 percent for each cash advance, plus interest begins to accrue immediately.
If you have a debit card and enough money in your account, you can get cash for free by making a withdrawal at a network ATM or getting “cash back” at the grocery store. Other potential transaction fees include merchant surcharges for using a debit or credit card, and “convenience” fees for using a card to pay taxes or other government agency bills.
Personal finances. If you want to avoid the possibility of spending money you don’t have, accumulating debt or having to pay interest on your purchases, you could use a debit or prepaid card rather than a credit card. On the other hand, if you need something—such as an urgent car repair—and don’t have the
cash for it, a credit card will get you out of a bind. If it will take you a while to pay off the balance, use the card with the lowest interest rate. If you know you’ll have the cash to pay off the purchase in full when the bill comes, choose the card that offers the longest grace period (a short, interest-free loan) or the
Benefits. Card benefits can range from extended product warranties to merchant discounts and rewards. All else being equal, use the card that offers the rewards or benefits that would be most valuable to you for a particular transaction. Be careful not to spend more than you otherwise would just to try to maximize rewards—finance charges on revolving debt quickly wipe out the value of any cash rebates, points or airline miles you earn.
Consumer protections. Credit cards are your best option for making purchases online or with unfamiliar merchants as they offer the greatest consumer protections by law, including the right to withhold payment on a disputed transaction and a pre-defined amount on your liability for fraudulent transactions. Debit cards also limit your liability, but the amount you are responsible for increases the longer you wait to report the card missing, and you don’t have the same dispute rights. Prepaid card issuers promote their cards’ “zero liability” policies, but this protection is voluntary (not required by law) and can be changed at the card issuer’s discretion.