In today's world, consumers are presented with a plethora of payment options. Your choice can affect your financial well-being, convenience, and even the benefits you receive. Let's dive into the best payment methods for various types of purchases.
1. Groceries
- Best Option: Debit Cards or Cash.
- Reason: These are routine and essential expenses.
- Watchout: Credit cards may offer cash back, but carrying a balance will incur interest, often offsetting any benefits.
- Example: If you spend $200 weekly on groceries, a 2% cashback card will earn you $4. Yet, if you don't pay it off immediately, interest can overshadow that benefit.
2. Travel
- Best Option: Credit Cards.
- Reason: They provide travel insurance, rewards, and fraud protection.
- Example: Many credit cards offer travel protection, which can save you from unexpected cancellations or delays.
- Watchout: Ensure you're not spending beyond your means just to earn rewards.
Preferences can vary depending on individual needs – some might prioritize no foreign transaction fees, while others may focus on lounge access, hotel perks, or air miles. However, based on widespread recognition and benefits, here are three top travel credit cards to consider:
Chase Sapphire Preferred Card
Sign-up Bonus: Often offers a substantial sign-up bonus in points after you meet the spending requirement in the initial months.
Earning Rates: Typically earns 2 points per dollar on travel and dining and 1 point on everything else.
Redemption: Points can be redeemed for travel through the Chase Ultimate Rewards portal at a 25% bonus or transferred to several airline and hotel partners.
Additional Benefits: No foreign transaction fees, primary car rental insurance, and various travel protection benefits.
Annual Fee: There is an annual fee, so you'd have to weigh that against the benefits you'd use.
The Platinum Card from American Express
Lounge Access: Offers extensive airport lounge access, including Centurion Lounges, Delta Sky Clubs (when flying Delta), and Priority Pass Select lounges.
Earning Rates: Typically, it earns 5 points per dollar on flights booked directly with airlines or American Express Travel and on prepaid hotels booked on amextravel.com.
Additional Benefits: Provides up to $200 in Uber credits annually, up to $200 airline fee credit with a chosen airline, hotel status with Hilton and Marriott, and no foreign transaction fees.
Annual Fee: The card comes with a high annual fee, which is justified if you take advantage of its perks.
Capital One Venture Rewards Credit Card
Earning Rates: Earns a flat 2 miles per dollar on all purchases.
Redemption: Miles can be redeemed as a statement credit toward a wide range of travel purchases or transferred to Capital One's airline partners.
Sign-up Bonus: Typically offers a decent sign-up bonus after meeting the spending requirement.
Additional Benefits: No foreign transaction fees and up to $100 credit for Global Entry or TSA PreCheck application fee.
Annual Fee: There's an annual fee, which is relatively low compared to some other premium travel cards.
Remember: Credit card offers and benefits can change, and they can vary based on your location or current promotions. Always read the terms carefully, consider the annual fees against the potential benefits, and assess how the card fits with your spending habits and travel preferences. Before making a decision, it's recommended to check the card issuers' official sites or consult with a financial advisor for the most up-to-date information.
3. Restaurants
- Best Option: Credit Cards.
- Reason: Many offer dining rewards or cash back.
- Watchout: Overspending to earn points can backfire if you cannot pay off the balance.
Dining out is not only a treat but can also become a savvy financial strategy when paired with the right credit card, several credit cards specifically reward foodies who frequently eat out. Here are three top credit cards designed for restaurant-goers and those who spend a lot on dining:
Chase Sapphire Reserve Card
Earning Rates: Typically offers 3 points per dollar on dining (including eligible delivery services) and travel, and 1 point per dollar on other purchases.
Redemption: Points are redeemable through the Chase Ultimate Rewards portal, where they can be worth 50% more when redeemed for travel. You can also transfer points to a number of travel partners.
Additional Benefits: Comes with a $300 annual travel credit, Priority Pass Select airport lounge access, no foreign transaction fees, and strong travel protection coverage.
Annual Fee: This card has a higher annual fee, but if you dine out and travel frequently, the benefits can outweigh the cost.
American Express® Gold Card
Earning Rates: Earns 4 points per dollar at restaurants and U.S. supermarkets (up to a certain limit), 3 points on flights booked directly with airlines or through Amex Travel, and 1 point on other purchases.
Additional Benefits: Provides monthly dining credits (subject to specific terms) at select restaurants or food delivery services, no foreign transaction fees, and personalized travel and dining recommendations.
Annual Fee: There's an annual fee, but the dining and supermarket rewards can provide substantial value for regular spenders in these categories.
Capital One Savor Cash Rewards Credit Card
Earning Rates: Offers 4% cash back on dining and entertainment, 2% at grocery stores, and 1% on all other purchases.
Sign-up Bonus: Historically, this card has provided a one-time cash bonus after spending a specific amount within the initial months of account opening.
Additional Benefits: No foreign transaction fees, which makes it great for dining out while traveling abroad.
Annual Fee: There's an annual fee, though the cash back on dining and entertainment can add up quickly for frequent spenders.
Important Note: Credit card offers, benefits, and terms can change over time. It's essential to consider the annual fees, evaluate the benefits relative to your dining habits, and always read the most up-to-date terms and conditions from the card issuers before making a decision.
4. Rideshares (Uber, Lyft)
- Best Option: Credit Cards or Linked Payment Apps.
- Reason: Seamless transactions and possible rewards.
- Watchout: Ensure your linked app has a secure password to prevent unauthorized access.
Rideshare services like Uber and Lyft have become integral for many, both for daily commutes and occasional rides. Some credit cards have recognized this trend and now offer specific rewards or benefits for rideshare expenses. Here are three credit cards well-suited for rideshare users:
Chase Sapphire Reserve Card
Earning Rates: This card generally offers 3 points per dollar on travel expenses, which includes rideshare services like Uber and Lyft, as well as 3 points on dining and 1 point for other purchases.
Additional Benefits: You can benefit from a $300 annual travel credit, which can offset rideshare charges. Additionally, there's no foreign transaction fee, making it an excellent card for international travel that includes rideshares.
Loyalty Boost: Periodically, partnerships might emerge between credit card issuers and rideshare companies. For instance, there have been instances where Lyft rides earned 10x points for a limited time with this card.
Annual Fee: A higher annual fee is associated with this card, but regular rideshare users can find value in its myriad benefits.
American Express Platinum Card
Uber Benefits: At certain times, this card has provided monthly Uber credits, which can be a significant perk for frequent users of the service.
Earning Rates: Often, you'd earn 5 points per dollar on flights booked directly with airlines or through American Express Travel, 5 points on prepaid hotels, and 1 point on other eligible purchases.
Additional Benefits: Extensive airport lounge access, hotel status upgrades, and no foreign transaction fees.
Annual Fee: This card carries a premium annual fee, but the benefits, especially for frequent travelers and rideshare users, can justify the cost.
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5. Household Spending & Shopping
- Best Option: Debit cards for small items; Credit cards for larger ones.
- Reason: Credit cards might offer extended warranties on big-ticket items.
- Watchout: Only make large purchases if you're confident in your ability to pay the balance.
Shopping credit cards typically come with rewards or cash back on everyday purchases. Here are three credit cards that might be suitable for avid shoppers:
Chase Freedom Flex
Earning Rates: This card offers cash back in varied categories. You typically earn a higher percentage on rotating quarterly categories (like department stores or online shopping), a set rate on travel booked through Chase, dining, and drugstores, and then 1% on other purchases.
Sign-Up Bonus: Historically, there's been a bonus after spending a certain amount in the first few months.
Additional Benefits: The card occasionally provides 0% introductory APR on purchases for a specific period, which can be handy for big-ticket shopping items. It also often includes benefits like purchase protection and extended warranty.
Annual Fee: Typically, no annual fee.
American Express Blue Cash Preferred Card
Earning Rates: This card often offers a substantial cash back rate at U.S. supermarkets and on streaming subscriptions, a decent rate on gas stations and transit, and then 1% on other purchases. These categories can be beneficial for regular shoppers.
Welcome Offer: Often includes a cash bonus after spending a specific amount in the first months.
Additional Benefits: It might offer 0% introductory APR on purchases for a certain period.
Annual Fee: There's an annual fee, but for many, the cash back earned easily offsets it.
Capital One Quicksilver Cash Rewards Credit Card
Earning Rates: A straightforward card that usually offers 1.5% cash back on every purchase, every day. This simplicity can be appealing to those who don't want to track categories.
Sign-Up Bonus: Historically, there's a one-time cash bonus after spending a specific amount within the initial months of account opening.
Additional Benefits: This card might also provide a 0% introductory APR on purchases for a specified period.
Annual Fee: Typically, no annual fee.
Things to Consider: When shopping, especially online, security should be a top priority. Many of these cards come with added security features, such as fraud alerts. Also, remember that while rewards and cash back are beneficial, carrying a balance and accruing interest can quickly negate those benefits. Always aim to pay off the balance in full each month if possible.
Lastly, remember that credit card offers and terms can evolve over time. Always review the latest terms from the card issuers, consider your spending habits, and if necessary, consult with a financial advisor before making a decision.
Amazon Prime Rewards Visa Signature Card
Earning Rates: This card is especially rewarding for Amazon Prime members. Typically, you earn 5% back at Amazon.com and Whole Foods Market, 2% back at restaurants, gas stations, and drugstores, and 1% back on all other purchases. Non-Prime members can access a similar card but usually with a lower cash back rate on Amazon and Whole Foods purchases.
Sign-Up Bonus: Amazon often offers a gift card instantly upon credit card approval.
Additional Benefits: This card comes with Visa Signature benefits, which can include travel and purchase protections, no foreign transaction fees, and more. This makes it not just a shopping card, but also a decent travel card.
Annual Fee: Typically, there's no annual fee. However, to access the highest rewards rate, you'd need an Amazon Prime membership, which has its own annual or monthly fee.
Things to Consider for Shoppers:The Amazon Prime Rewards Visa Signature Card can offer fantastic value if you shop frequently at Amazon or Whole Foods. However, it's most beneficial for existing Prime members, given the elevated cash back rate. If you aren't a Prime member and don't intend to become one, the rewards rate is lower, and you might want to compare it with other general shopping cards to see which offers the best value for your spending habits.
Incorporate this option into your shopping habits and always keep in mind your spending patterns. If you shop heavily on Amazon, the 5% back can add up quickly. As with any credit card, it's wise to pay off the balance monthly to avoid interest charges, which can diminish the value of your rewards.
6. Home Improvements
- Best Option: Credit Cards for small projects; Personal Loans or Home Equity Loans for substantial renovations.
- Reason: Personal and home equity loans usually have lower interest rates for larger amounts.
- Example: A $20,000 home renovation might be financed at 6% with a home equity loan, versus 20% with a credit card.
- Watchout: Missed payments on home equity loans put your home at risk.
Home improvement projects can be significant investments. Using the right credit card can offer not only purchasing power but also rewards, cash back, or promotional financing that can offset some of the costs. Here are three credit cards, that can be suitable for home improvement spending:
Chase Freedom Unlimited
Earning Rates: Historically, this card offers a flat rate for unlimited cash back on all purchases, making it a versatile option for varied spending, including home improvement.
Sign-Up Bonus: It often comes with a bonus after spending a certain amount in the first few months.
Additional Benefits: The card occasionally offers 0% introductory APR on purchases for a specific period, which can help finance home improvements.
Annual Fee: Typically, no annual fee.
The Home Depot Consumer Credit Card
Special Financing: The primary allure of this card is its promotional financing for large purchases. It might offer no-interest if paid in full within a specified period (e.g., six months) on purchases of a certain amount or more.
Exclusive Offers: Cardholders often receive discounts or special offers for in-store purchases.
Deferred Interest: Note that the no-interest offers usually come with deferred interest, meaning if the balance isn't paid in full by the end of the promotional period, you'll owe interest from the purchase date.
Annual Fee: Typically, no annual fee.
Citi Double Cash Card
Earning Rates: This card generally offers a total of 2% cash back: 1% when you make a purchase and another 1% when you pay it off. This straightforward reward structure can be valuable for large home improvement expenses.
Flexible Redemption: You can redeem cash back for checks, statement credits, or gift cards.
Additional Benefits: At times, this card has provided 0% introductory APR on balance transfers for a specific period.
Annual Fee: Usually, there's no annual fee.
Things to Consider: When selecting a credit card for home improvement, consider your spending habits, how quickly you can pay off the balance, and whether you prefer cash back, points, or special financing. Also, always pay attention to any deferred interest offers. While they can be beneficial, if you don't pay off the balance within the promotional period, you could be hit with all the accrued interest from the start date.
Lastly, credit card offers and terms can change. Ensure you read the most up-to-date terms and conditions from the card issuer and, if needed, consult with a financial advisor before making a decision.
7. Utilities
- Best Option: Automatic Bank Withdrawals or Credit Cards.
- Reason: Ensuring timely payments and possibly earning rewards.
- Watchout: Set reminders for when automatic withdrawals will occur to avoid overdraft fees.
8. Education
- Best Option: Scholarships, Grants, Education Loans, and 529 accounts.
- Reason: Education loans usually have lower interest rates and flexible repayment options.
- Watchout: Only borrow what's necessary. Education loans can accumulate quickly, leading to significant debt upon graduation.
529 plans are tax-advantaged savings plans designed to encourage saving for future education costs, usually for college, but they can also be used for K-12 education expenses. Each state sponsors its own 529 plan(s), and you aren't limited to investing in your home state's plan. Here are three highly regarded 529 plans:
Utah's my529 Plan
Investment Options: This plan provides a wide range of investment options, including customized age-based portfolios, static portfolios, and individual fund portfolios.
Fees: Historically, Utah's plan boasts some of the lowest fees in the country.
Minimum Contribution: There's no minimum to open an account, and no required ongoing minimum contribution.
Tax Benefits: While you can benefit from federal tax savings with any 529, Utah residents can get additional state tax benefits from contributing to this plan.
New York's 529 College Savings Program - Direct Plan
Investment Options: New York's 529 offers age-based, static, and individual portfolio options.
Fees: The plan has competitive fees, with the added bonus of no annual account maintenance fee.
Minimum Contribution: The minimum to open an account is relatively low.
Tax Benefits: New York residents can deduct up to a certain amount annually for their contributions, depending on their filing status.
Nevada's Vanguard 529 College Savings Plan
Investment Options: Managed by Vanguard, this plan offers age-based portfolios and individual portfolios based on Vanguard mutual funds.
Fees: Being associated with Vanguard, the plan benefits from low fund costs. However, it's always important to be aware of any additional administrative fees.
Minimum Contribution: There's a relatively low minimum contribution to start.
Tax Benefits: While Nevada doesn't have a state income tax (so no state deduction), the plan is available to all U.S. residents, and everyone can benefit from the federal tax advantages of a 529.
Things to Consider:
- Your State's Plan: Before investing in an out-of-state plan, it's worth investigating your own state's 529. Some states offer tax breaks or matching contributions for residents.
- Fees: Like all investments, fees can erode returns over time. Pay attention to both fund expense ratios and any additional administrative fees.
- Usage: Remember that money from a 529 plan must be used for qualified education expenses to avoid taxes and penalties on withdrawals.
Lastly, 529 plans can be intricate, and individual financial situations vary. It's a good idea to consult with a financial advisor or tax professional to ensure you're making the best decision for your family's needs.
9. Business Expenses
- Best Option: Business Credit Cards or Business Loans.
- Reason: Keeping personal and business expenses separate is crucial for accounting and taxation.
- Watchout: Business credit cards can have high interest rates; always read the terms.
Business credit cards are specifically designed to cater to the needs of small businesses, freelancers, and entrepreneurs. They not only help with managing cash flow but can also offer valuable rewards and benefits tailored to business-related expenses. Here are three popular business credit cards:
Chase Ink Business Preferred
Earning Rates: Typically, this card offers points for spending in categories like travel, shipping, internet/cable/phone services, and advertising purchases with social media sites and search engines.
Sign-Up Bonus: Chase often provides a substantial bonus after spending a certain amount within the first few months of account opening.
Additional Benefits: This card offers trip cancellation/interruption insurance, cell phone protection, and more. Plus, points can be worth more when redeemed for travel through Chase Ultimate Rewards.
Annual Fee: There's usually an annual fee, but its rewards can easily offset this cost for many businesses.
American Express Blue Business Plus
Earning Rates: This card traditionally offers a simple rewards structure, granting points on every purchase up to a specified amount each calendar year, then a lower rate thereafter.
0% Intro APR: One notable benefit is the 0% introductory APR on purchases and balance transfers for a specified period, which can be beneficial for businesses looking to make large purchases and pay them off over time.
Additional Benefits: The card provides tools like the ability to spend beyond your credit limit and free employee cards.
Annual Fee: Typically, there's no annual fee.
Capital One Spark Cash for Business
Earning Rates: This card is known for its straightforward cash-back structure, granting a flat cash-back rate on all purchases.
Sign-Up Bonus: Capital One often provides a cash bonus after you spend a specific amount within the initial months of account opening.
Additional Benefits: The card includes free employee cards, year-end summaries, and other features to make business spending more manageable.
Annual Fee: There is an annual fee, but the generous cash-back rate can offset it for businesses with substantial spending.
Things to Consider:
- Spending Categories: Depending on where your business spends the most, you'll want to choose a card that rewards those categories.
- Cash Flow Needs: If your business has fluctuating cash flow, a card with 0% introductory APR or other financing options might be beneficial.
- Employee Cards: If you have employees who'll need access to the business credit, consider cards that offer free employee cards and allow for setting individual limits.
Some Payment Types to Use With Caution
Payday Loans
- Use With Extreme Caution
- Reason: They offer a quick fix but come with exorbitantly high interest rates.
- Example: Borrowing $500 might incur fees of $75 for a two-week loan, equating to an annual interest rate of 390%.
- Watchout: This can lead to a vicious cycle of debt.
Buy Now, Pay Later
- Use Judiciously
- Reason: These deferred payment options can be convenient, but they can impact credit if not used responsibly.
- Watchout: Late fees can accumulate rapidly, and over-reliance can harm your credit score.
General Guidelines:
- Assess Your Financial Health: Regularly review your financial statements. If you're carrying high credit card debt, consider using cash or debit more often.
- Understand the Terms: Always be aware of interest rates, fees, and penalties associated with your payment methods.
- Security: Use strong, unique passwords for online payment platforms and regularly check statements for unauthorized transactions.
- Benefits vs. Costs: Always weigh the rewards against potential costs. Earning 2% cash back isn't beneficial if you're paying 20% interest.
By following this guide, you'll be better equipped to choose the right form of payment for every situation, ensuring financial stability and maximizing benefits.
