When choosing a credit card it’s easy to get overwhelmed. There are so many choices available and for those who have never had a credit card before, it’s understandable to feel in over your head.

Some people will tell you that credit cards are evil and you should stay far, far away from them. Others are less interested in telling you the horror stories of their bad-credit lives and just claim that they have no need for credit because they pay cash for everything. Or some people will claim that credits cards are a scam or a part of some government conspiracy and if you chose to use credit, you will fall into a trap that you will never be able to dig yourself out of.

Well, in my humble opinion, those people are uneducated on the world of credit cards and this post will explain why.

Credit Cards that offer incentives or rewards programs that, if utilized correctly, offer FREE money for spending hard earned dollars you would have needed to spend in the first place. Initially, when starting out, sometimes it’s hard to qualify for the best rewards credit card without a decent credit score. Credit Scores range from the low 300s to the mid 800s, depending on if it’s a score from one of the reporting agencies (Equifax, Transunion, or Experian), or if it’s a FICO or Vantage score. Either way, it’s an important number, a number that your financial future can depend heavily on.

Now, as I write about some of my favorite cards or the favorite cards of some of my colleagues, understand that I recommend one utilize self control when it comes to credit cards. A credit card is not by nature. free money. However, if you use it responsibly, you can receive free money as a perk of being responsible. I personally recommend always paying your bill in full and on time every single month. Never, ever put something on a credit card that you don’t have 3x the amount of in your checking account. Life happens, we have all been there, but if you are planning on spending $100 on shoes, please consider having at least $300 or more in extra money in your account. A $300 checking account balance with a current amount of $300 due in other financial obligations does not count. Also, make sure that you keep your credit utilization down. Ideally, you want to use >15% of your overall credit. That means if you have a $1000 credit limit, don’t put more than $150 on that card. If your card has a $5000 limit, don’t put more than $750 on that card. Setting precedents such as the ones explained above will help someone with a modest budget establish excellent credit habits, and thus credit itself.

From my research and personal group of friends and colleagues, the first credit card for most is a Capital One card because they are extremely conservative with the the credit they distribute but their criteria for awarding credit is the most forgiving to those who don’t have credit previously established or those who have bad credit. The Platinum Capital One card which carries a hefty 24.9% variable APR (Annual Percentage Rate) and an intro annual fee of $0 ($19 per year after) will likely extend a $500 credit limit to those who have little to no credit. If you can get a card without an annual fee that would be even better because no one wants to spend $19 a year for a card he or she cannot use. If I recall correctly, this same card will automatically increase the credit limit from $500 to $750 if the first 5 monthly payments are made on time. Unfortunatley, this card offers 0 incentives or rewards, but it does help establish credit.

Next, the Chase Freedom card is absolutely fantastic. This is where the fun of rewards kick in. First, it carries no annual fee. Next, the way the card works is you get 5% cash back for spending up to $1500 in select categories that change on a quarterly basis. Outside of the promotional categories, you get an unlimited value of 1% cash back on all purchases, and then a 10% annual bonus on the cash back earned on new purchases with a qualifying Chase checking account. Plus, for new members, you will get a $100 bonus after you spend $500 in 3 months. To provide a real life example, in the past year that I have used my Chase Freedom card, I have accrued 23,844 points, which translates to $238.44 just for paying my bill in full and on time. That’s it. If one were take full advantage of each quarterly promotion of 5% back up to $1500, one would have $75 per quarter, which equates to $300 per year! All that money just for being responsible! They should call it the “allowance for good financial behavior” program for adults!

The Chase Freedom card also offers a 0% Intro APR for 15 months on both purchases and balance transfers. This can be nice for larger purchases, so long as you pay the balance in full prior to the end of the promotional 15 month period. Suze Orman, who is well regarded for her financially savvy mind, famously said, “Those carrying a credit card balance should scale back to making the minimum payment each month so they have more money to put into savings.” First, please don’t ever take this advice, unless you have a card that offers 0% interest for 12 months and can fully pay off the balance by that time. If you cannot, divide the total of the amount you are considering charging to the credit card by the amount of months allocated for your 0% interest promotion (typically 12, sometimes 18), if you cannot afford that amount monthly, you have no business putting that purchase on a credit card. If you choose to charge it anyway and fail to pay of the remaining balance by the end of the 0% interest promotion, you will get slapped with 12 months of deferred or retroactive interest and your bill will be far larger than you could imagine. Deferred interest is usually printed at the bottom of each bill and it is the amount of interest being deferred during the 0% interest period. So, if your APR is 18% and your default APR (annual percentage rate charged if the minimum payment is not met and remains unpaid on the following due date) is 29.99% interest, and you purchased $1000 item, you are looking at an extra $299 per year on top of the $1000 item. So, if you take advantage of the 0% APR for 15 months and you owe only $100 left on the purchase by the time month 16 rolls around, you’ll get slapped with another $373.75 or so in deferred interest fees! Worst yet, you’ll continue to be charged interest on the outstanding balance until it’s paid off. So, if you’re going to take advantage of 0% interest, pay off the balance in full before the 0% promotional period is over.

Another favorite rewards card is the Discover IT card because it offers rewards extremely similar to the Chase card, but the select categories typically occur at different times of the year so you can use both cards congruently. Like it’s competitor, Discover’s IT card also has no annual fee but this card offers a very rare perk — it gives you a Free FICO credit score on your monthly statement and online. Not only do you get 5% cash back in quarterly categories, you also get 1% back on unlimited purchases, and you can ever receive 5-20% cash back at 200+ retailers like the Apple Store (I love this, personally), Macy’s and BestBuy.com when you go through their online portal (shopdiscover.com). You can even use your cash back money as actual cash when making purchases from Amazon (though, in truth, other card providers such as AMEX, offer this feature as well.) Discover can be extremely conservative on the credit they extend so don’t be shocked if other cards offer a $5,000 limit and Discover only extends a $1,000 limit. Discover also likes heavy usage (lots of spending) and they typically only offer an automatic increase every 6 months to – a year. With all this said, it’s still a card I go to on occasion.

If one were to maximize their spending in each promotional category per quarter per credit card (both the Freedom card and the IT card), one could accrue up to $600 per year in rewards points.

It’s also good to consider applying for credit cards that offer rewards and perks for the things YOU care about. For example, I know someone who recently applied for a Disney Rewards Card because they love Disneyland and Disney in general. They wanted to be rewarded for spending money on specific categories they would have spent money on anyway.

For example: Disney offers two cards – The Disney Premier Rewards card and the Disney Rewards card. The Disney Premier Rewards card offers 2% Disney Dream Reward Dollars at gas stations, grocery stores, restaurants and Disney Locations and 1% cash back every where else. The Disney Rewards card offers 1% Disney Dream Reward Dollars on everything. Like most cash back programs, these points / dream reward dollars add up and, again, offer free money towards things that YOU care about.

Another good thing to consider is to take advantage of sign up bonuses for certain cards because that is also free money, if used correctly. I remember when I signed up for my American Express Platinum card, the perks I received for upgrading from my American Express Gold card actually gave me $100 cash on top of my $450 heft annual fee. What this means is that I was given $550 worth of incentives so the fee is waived, essentially, for the first year and I’m given an extra $100 to “test-drive” it. Now, since this bonus only lasts for 1 year, I will use this card for the first year and then downgrade to the America Express Premier rewards Gold, where I will be able to keep the perk points my American Express Platinum offered. I can explain Amex card offerings in a future update because, generally speaking, they can take a good credit foundation in order to be offered such a card.

One more thing, with the 4 cards I mentioned today, it is important to note another factor of an excellent credit score is to have low hard inquiries. Any time your credit report is pulled, typically a hard inquiry is placed on your credit. If you have too many hard inquiries, lenders might think you are trying to over extend yourself so they may choose to not offer credit. This could become important if you were shopping for a car or a mortgage. Generally, you want to keep your hard inquiries down to 2 on your credit report at any given time. Since it takes 24 months for hard inquiries to fall of your credit, I would recommend applying for a new credit card of line of credit no more than once per year.

With all this said, I strongly recommend creating good boundaries and adhering to a strict budget so you don’t let credit cards consume your finances. If used with care and backed by responsibility, there is little reason to use a debit card for daily purchases. For example, if I know I have to spend $100 on my utility bill, I know that I’m going to have that money in the bank because I budgeted accordingly. Since I know that I am on track with my budget, I know that I can safely put $100 on my credit card that yields at least 1% cash back (usually 5%) so that I earn money for my responsible purchase. If I do this for even just 1 year, I will have earned $60 (at a 5% cash back rate) on just this monthly bill. I have been utilizing the no-debit-card-for-anything method with my various credit cards for over 2 years now and I have accrued well over $1500 worth of cash back / points. I’m saving all my points and all my cash back for a trip to Europe, which will be covered in its entirety by rewards dollars – I.E FREE money. All I did was spend money I knew I had to spend anyway, but I used a rewards credit card, instead of a debit card, and paid my bills in full and on-time every month.

Feel free to leave comments or questions below!