'There isn't a best card out there': How to choose a credit card that works for you

Credit cards with a lower interest rate may be more worthwhile than rewards cards for some people.

Credit cards with lower rates — and no rewards — a better bet for some

Credit cards with big rewards can also come with high interest rates. (Ryan Remiorz/Canadian Press)

Credit cards are sometimes lambasted as high-cost consumer debt that can quickly get borrowers into trouble. But if you pay off the balance each month, credit cards can also have significant perqs.

Loyalty programs like Air Miles, which has both a standalone program and partnerships with credit cards, have drawn a lot of criticism lately, but Canadians are still attached to credit cards that offer rewards. From cash-back cards to those that collect travel points, different banks and credit card companies offer an overwhelmingly wide variety of options — some with annual fees and some without.

Pick your perks

When there are more credit cards to choose from than there are Instagram filters, where do you start?

"In reality there isn't a best card out there — it's what's best for you," Patrick Sojka founder of Rewards Canada said. The company recently released a ranking of different travel cards. The ranking isn't sponsored, but Rewards Canada earns a commission on approximately 60 per cent of those cards, including the card crowned the overall winner.

"We started this overall ranking to say, if you don't have the time to do the research, or don't want to pick through... then look at our top five." 

But that's just one ranking — there are also multiple online tools to help consumers researching credit cards.

Credit card comparison tools

The government of Canada's consumer agency offers a thorough online comparison tool, as does RateHub, a website best known for comparing mortgage rates, and rival rate comparison site RateSupermarket.ca.

The sites allow users to input different information, including how much money they make and spend, whether or not they're willing to pay an annual fee, and what type of rewards they're interested in. Small tweaks to that information can create very different rankings of cards, and potentially bump the popular rewards cards down the list.

But Alyssa Furtado, co-founder of RateHub, says for people struggling to get out from under credit card debt, rewards cards aren't always the way to go. 

High rewards, high interest rates

Big rewards can also come with high interest rates, often around 20 per cent. If that balance is paid off every month, there's no interest charged. However, not everyone does that. A poll by the Bank of Montreal found that one third of credit card users surveyed say they carry a monthly balance.

"There's a lot more awareness and marketing around [rewards cards] — people have heard of Air Miles, they've heard of Aeroplan, maybe even Capital One, but balance transfer and low-interest cards — you don't think of off the top of your head," Furtado said.

Some balance transfer cards can allow a person to transfer a credit card balance from another card (where they're presumably being charged a high interest rate) and receive an introductory rate as low as zero per cent. That rate likely has a time limit on it, but for some people it could be long enough to pay off the balance owed.

Low rates may be more worthwhile

"If you're disciplined, that could really make the difference," Furtado said of lower rates. She recommends reading all of the rules associated with a balance transfer, so it's clear how much will be charged on the initial lump sum that is transferred and on any new spending.

If deciding between personal priorities isn't enough to think about, there's one more thing to consider: the fees retailers pay credit card providers.

All credit cards charge fees to retailers, which generally range between one per cent and 2.5 per cent of the cost of what's being sold. The fees vary depending on the type of card the customer is using — cash-back and premium cards generally have higher fees — and the type of retailer they're shopping at.

Hidden costs of rewards cards

Merchants can pass those costs onto consumers in the form of higher prices. They can also choose to offer discounts for different payment methods, like cash or debit. 

Retail giant Walmart said last year that it would stop accepting Visa cards in Canada, citing high fees for transactions. But the two companies struck a deal earlier this month to end the six-month spat. It's unclear what concessions were made to end the dispute. 

Figuring out how much a card provider charges a retailer can be difficult, and at the end of the day, all shoppers could end up paying more because of those fees, whether they have a fancy card or not.

And, of course, some argue that the best option is no credit card at all. A report compiled by Statistics Canada released last fall showed that the ratio of household credit debt to disposable income had increased. And in December, a Bank of Canada report looking at the financial system said they were seeing an uptick in the number of homebuyers who were borrowing more than their income suggested they could pay back.

'I paid for my whole honeymoon with points'

Furtado, though, is still a fan of rewards cards. 

"If you pay off your credit card every month and you don't carry a balance, then it should be all about maximizing rewards," Furtado said.

"I paid for my whole honeymoon with points."

About the Author

Jacqueline Hansen

Senior Business Reporter

Jacqueline Hansen is a senior business reporter for CBC News. Based in Toronto, she's been covering business and other news beats since 2010.

With files from Canadian Press