Winning the war against credit cards
How many credit cards do you have in your wallet? And -- perhaps a better question -- are you taking advantage of them, or are they taking advantage of you?
Unfortunately, for many people, it's the latter. Month after month, they throw a minimum payment toward their credit card debt, only to get the next bill and see that, due to high interest rates, the balance has gone up, not down. That's a big problem in this economy, as the Federal Reserves is likely to raise interest rates when it makes a move, rather than sending them back down.
I believe credit cards are a great -- and often necessary -- tool to keep in your financial arsenal. But you have to use them wisely.
So how do you secure the upper hand in the relationship between you and your plastic?
• Consider your lifestyle. I'm pretty careful about what I put in my wallet. However, I do rely on my credit card for everyday purchases. And if I'm giving the credit card company that much business, I better be getting something back in return. I choose to take my reward in the form of airline miles, because I travel pretty frequently and I know I'll use them. But these days, a lot of people are going for gas or cash-back cards. The trick is to think about what reward you'll use, because you don't want to end up with a bunch of miles on your hands and nowhere to go.
"For most consumers, if you want to keep it simple and you don't travel a lot, cash is king in my opinion. But one card doesn't fit all, and it's a matter of finding which card fits your lifestyle and your budget," says Curtis Arnold, founder of cardratings.com and author of the new book "How You Can Profit From Credit Cards" (FT Press). Even if you decide that a cash-back card is for you, your work isn't over. There are cards that will give you more points for shopping at grocery stores, filling your car with gas or even paying your gym membership. Figure out where you'll get the most bang for your buck.
• Examine the fine print. And I do mean examine, with both a fine-tooth comb and a magnifying glass. There are loopholes in a lot of these deals, no question. That's not to say they aren't worth it, but you have to look for things like caps on the amount of the reward you can receive, how easy it is to get your earnings (do they give you a credit on your statement, for instance, or do you have to wait for a check in the mail?) or tiered programs that boast 5 percent cash back, but don't kick in until you spend $10,000. If you're a big spender, it may well be worth it, but otherwise you'll want to find a program that starts with the first dollar you charge.
I'd also suggest calling up the credit card company and asking if the gas station or grocery store you frequent is part of the program.
"It's basically up to the merchant to properly code the transaction so it fits into the reward program's list of qualified stores. You shouldn't go into cash-back cards expecting to get it on every purchase," explains Ellen Cannon, managing editor of Bankrate.com. The last thing you want to do is focus all your shopping on one store, only to find out you weren't getting the rewards you thought you were.
• Don't forget your budget. You knew it was coming: Getting cash back for the money you'd spend anyway is great; spending money to get cash back -- or frequent flyer miles, hotel points, dollars toward a car or whatever you're collecting -- is not. Don't use a rewards program as an excuse to charge a new dress or go on a vacation you can't afford. These programs are perks, but they're certainly not lucrative enough to warrant spending money you don't have. By the same token, if you're using a credit card for the majority of your purchases, you still have to stick to a budget -- I don't care how high your limit is -- and you need to be absolutely sure that you can pay that bill off in full when it lands in your mailbox. "Studies have show that consumers spend more on reward cards than plain-Jane credit cards, and moreover, consumers spend more on credit cards than on debit cards. You have to be disciplined and shrewd about it," warns Arnold. It's all too easy to swipe a piece of plastic and tell yourself you'll think about it later, because later comes around every single month.
• Use balance transfers. If you have a decent credit score, you probably receive at least one or two credit card offers in your mail each week. Often, they offer lucrative deals like zero percent APR for six months or even a year. These cards can be a great way to pay down the debt you're carrying on another, more expensive, card, as long as you're careful. For starters, balance transfers do not come free anymore, so moving your debt from one card to another is going to cost you.
"Everyone used to have a cap of about 3 percent of the balance, up to $90 or so, but a lot of companies are now removing that cap," says Cannon. So say you're transferring $3,000 -- 3 percent of that is $300. Nothing to sneeze at, particularly when you're doing the transfer to save money. When you're evaluating offers, you want to look for that cap, and ideally you should pay no more than $100 for the transfer. Then you want to get out your calculator and run the numbers. Depending on your balance and the APR on your original card, a transfer can save you big in terms of interest. NOTE: An offer of a great balance transfer in the mail is no guarantee that you'll qualify. Just another reason to keep your credit score up around 700 -- or higher.
Article via Daily Herald
Tell a friend about Kallico