Choosing the Right Credit Card: Adapt to Changing Landscape

As mentioned, credit card interest rates can often be fairly high. But paying off credit card debt could become even more costly if the Federal Reserve raises interest rates even higher in an attempt to tamp down inflation, as we’ve seen in recent months. And if rates rise higher still, the minimum monthly payment due on credit cards could also increase.³

Rising rates could be especially tricky to manage for anyone with a student loan. In response to the pandemic, the government suspended payments on student loans, making it easier for many people to keep up with their credit card balances. But while that forbearance has been extended multiple times it is expected to come to an end this year. If this happens, and graduate borrowers have to resume making payments on their student loans, they may struggle to do so on top of their higher minimum credit card payments.

With a changing credit card landscape comes a new credit card option: buy now, pay later (BNPL). Available from retailers for many years, the popularity of BNPL payment plans spiked since the start of the pandemic as consumers shifted to online shopping. Now card issuers are also embracing these plans, with the most common versions allowing card members to pay off the purchase in a set number of installments, often interest-free if paid on time or with a flat fee per plan.

A potential downside to BNPL plans is that they can make it easy to overspend. And what appears to be an interest-free loan at the outset can quickly accrue late fees and interest charges if payments are late.

Another trend for credit card use in 2023 includes substantial tweaks to reward programs to make them more relevant to shifting lifestyles in light of COVID. In particular, some credit cards that once rewarded travel have been reworked to maintain relevance for more stay-at-home-minded card members. For example, these cards are expected to offer their users more lifestyle-related rewards and perks – like streaming credits and at-home workout benefits – that can be enjoyed without boarding a plane or hitting the road.

Given how high interest rates have risen in recent months and the chance that they could increase higher still, if you carry a balance on your credit card, it might be smart to begin paying it down. With that in mind, it may be worth keeping an eye out for any temporary low interest promotions you may be able to opt into. These occasional perks can help you whittle down debt while accruing less interest.

 
In some cases, reevaluating your credit card each year and considering whether you’d be better off switching to a new card, or even doing a balance transfer, could be an option to consider. Credit card companies change their offers from time to time, so you’ll want to evaluate whether your current credit card offers rewards that are in a category that’s still relevant to you. Another reason to consider a switch is to take advantage of a potentially valuable introductory offer. 

Plus, choosing a new credit card may help boost your credit score. Adding a new card’s credit limit without increasing your total spending may improve your credit utilization ratio, which is the percentage of your total credit limit you’re using – a key factor that contributes to credit scores. 

And if your credit score has improved since the last time you applied for a card, you may be able to qualify for a new one with benefits that better meet your needs. If you do choose to open a new card, remember that closing a credit card with a zero balance could lower your credit score.