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How to crunch your credit card choices to find the perfect plan

Remember, the rewards of any card are moot if you carry a balance.

Elise Amendola/AP

The only reason I applied for my first credit card at age 21 was because it had a photo of 1997 Formula One World Champion Jacques Villeneuve's car on the front of the card. Yes, it was the look of the card that did it for me. How pathetic.

The last credit card I signed up for took me weeks of research. It's practically a full-time job trying to figure out the various point schemes they each have and distilling them down to a common denominator. With some cards you earn one point per dollar spent, whereas others give you 100. Some offer a bonus point for gas purchases and a 1.25-times multiplier for travel purchases. Others offer no travel purchase bonus, but might give you a three-times point multiplier on groceries.

Redeeming them for rewards comes with equally disparate calculations. One card allows you to book a short-haul flight for 15,000 points, as long as the flight costs $350 or less. So if you booked a flight that was $100 or $350, in both cases it would sap 15,000 points from your balance. So you're either getting a 0.67 per cent return on your money for making purchases or 2.33 per cent, depending on how you spend those points.

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You then have to factor in annual fees and the various ancillary benefits each card offers. Some provide trip interruption insurance, but not trip cancellation insurance. Some have out-of-country travel medical insurance for eight days, others might be 15.

It's an absolute nightmare trying to figure out which card is the absolute best for your particular situation and needs.

To make things even more complicated, Sears Financial just eliminated the foreign currency transaction charge on its two MasterCards. Many credit cards tack on an additional 2.5 per cent over and above the exchange rate they offer on purchases made in foreign currencies. According to Sears Financial, a €1,000 purchase with an exchange rate of $1.29814 per euro, might normally incur an additional $32.45 foreign currency transaction card with other cards. That fee is waived with their new feature. Clearly, if you spend a lot of money making purchases in foreign currencies, this can add up to some great savings.

However, Sears Financial's own survey indicated that 65 per cent of Canadians travel abroad at least once every two years, but then also indicated they spent an average of $880 on their credit card per trip. That would equate to an average annual savings of $11. Given how competitive the credit card landscape is, that's hardly going to compel the average consumer to switch.

All of the rewards, features and benefits of any credit card are moot points if you carry a balance. Who cares if you earn 4 per cent on your spending in rewards if you're paying 20 per cent in interest on a balance that never seems to go down? To get out of credit card debt means putting the brakes on using your credit card in the first place.

When shopping for a credit card, avoid the rookie mistake I made with my first card and choose based on what will benefit you the most financially. If you're a travel bug, you'll probably gravitate to a travel rewards-based card. If you carry a balance and can't consolidate to a lower rate line of credit, perhaps your goal is a card with the lowest interest rate. Try using an online credit card selection tool to help narrow your search. Then, take a few hours to research your short list. You might find some cards will waive the annual fee if you are a banking client of the same issuer, for example. That could make it a clear winner.

I picked a card that was heavy on the travel rewards and benefits. The deciding factor was the ability to redeem travel points even if booking on a third-party discount travel site so I wouldn't be held hostage to high prices or blackouts with certain cards' in-house travel agency.

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Shopping for credit

The majority of foreign currency purchases are in U.S. dollars. You could also consider a U.S. dollar-denominated credit card (issued in Canada) if you have U.S. dollar income or assets already. If you just used Canadian dollars to pay off the balance, you would still be hit with currency conversion fees.

There are a number of credit card-comparison tools on the Internet that can help you select a credit card. They can sort cards based on rewards, features and interest rates, among other criteria. Try out a few different comparison sites, and then make sure to read up in detail on the ones you are considering.

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