Make the Most of Your Credit Card

Jan. 20, 2007 — -- Americans love credit: Right now there are 692 million credit cards in the country, and many will be swiped at malls, restaurants and movie theaters this weekend.

With so many credit cards, Americans carry a total of $711 billion in credit card debt -- more than the gross domestic product of India. But that isn't keeping credit card companies from luring more customers with attractive perks and talk of low rates.

Ron Lieber, staff reporter for The Wall Street Journal, recently visited "Good Morning America" to talk about what consumers can do to make sure they're getting the most out of their credit cards, and not just stuffing their wallets with extra plastic.

Lieber ran down the list of the three best cards for perks.

Miles: the Starwood Preferred Guest American Express Card

This card is a hotel card and a miles card, so you get points for hotels as well as travel. The card earns 1.25 frequent flier miles for every dollar charged. That's about as good as you're going to get on miles. There is one caveat -- you can't use the miles on United or Continental, but it works for all other airlines.

Cash Back: Fidelity

Fidelity has a card that delivers 1.5 percent of every purchase back in cash. That doesn't sound like a ton of money, but if you're charging a lot, it adds up. And you can have that money put into a brokerage account or a college savings account if you want to save for your kids' education.

Cash Back: Chase

Chase offers a card that allows customers to earn 5 percent back at gas stations, and at grocery and drug stores, and 1 percent everywhere else. So every time you use your card at the grocery store, you're going to get 5 percent of what you spend back.

Merchandise: American Express

When it comes to merchandise, the American Express cards tend to do the best. They have a membership rewards program, and they offer a wide variety of merchandise to choose from. This isn't a great value, because you have to spend a lot of money to get enough points to buy these things. So you're not going to get the same return on your money as with the travel and money-back cards. But if you're into the merchandise, the American Express cards are best.

Play the Game to Win

While Lieber said that credit cards make everyday spending convenient, he cautioned against using cards as bonus money.

"There are two different types of users -- those who pay their cards off in full almost every month, and those who use their credit cards as extra money. It's the people who use the credit cards for extra money who are not using the credit cards but being abused by them," he said.

Interest rates on credit cards are constantly fluctuating -- trying to figure out the best rate can be like playing a game. It helps to start out with good credit.

"If you have good credit, you're going to get pitched a much lower rate than your neighbor next door whose credit isn't as good," Lieber said.

The best way to get the best interest rate is to play the balance transfer game -- many credit cards offer zero percent interest for the first 12 months on transfers. Lieber said that's the only surefire way to guarantee the lowest interest rate.

There's no best time to do this -- the offers come fast and furious all year long. But Lieber mentioned some things to look out for.

Check out fees required to make a transfer. Make sure the transfer fees on your new card won't add up to more than the interest that you would have paid on an old card.

Pay all your bills on time. Once you transfer the balance, be sure to pay all your bills on time -- if you slip up, the card company will raise your interest rate. Card companies have access to your credit report, so if you pay your electric or cable bill late, they may use that against you to raise your interest.

Don't Borrow Money From Card Companies

Lieber said that when it comes to borrowing money, try not to borrow from a credit card company. He said taking a loan from family is best, if at all possible.

"If you have family that you can borrow from, do it. But come up with a timeline for paying it back, and at low interest, and stick to it," he said. "Borrowing money from family does not mean that you don't have to pay it back."

At prosper.com, a person-to-person lending service, people can solicit loans from strangers.

"If you need some extra money, you put your pitch up on Prosper. People will read your pitch and bid for the right to give you money. And you pay them back the same way you pay a bank or a credit card company," Lieber explained. "But instead of lining the pockets of the credit card companies or bank, you're paying interest to real people out there."