April has been named Financial Literacy Month to promote the importance of financial health among U.S. consumers. One of the biggest obstacles to fiscal wellness is an ugly thing called debt. While mortgages, student loans and car loans make up the majority of the consumer debt pie, credit cards are an increasingly larger piece. According to the 2015 American Household Credit Card Debt Study, U.S. households carry an average of $15,762 in credit card debt, up 10 percent from 2014.
Despite the carnage credit cards can create, they’re not all bad. Managed correctly, these pieces of plastic can increase your credit score, offset travel and gift costs, and provide additional protection for big purchases. Learn how to better manage your credit card spending and tame your poor plastic-swiping ways with these tips.
Missing a payment due date results in a late fee and the potential for a penalty interest rate of up to 29.99%. Set up automatic payments to cover the minimum due to avoid this trap. You may also set payment reminders to receive alerts via text or email when a due date is approaching.
Treat credit as debit.
Reward cards are popular these days since you can receive cash back or points to redeem for travel. But for people who carry a revolving balance, the interest you pay for purchases will make the rewards you earn obsolete. Treat your credit card like a debit card and only charge what you can pay off in full each month.
Review the terms.
Before you sign up for a new credit card, make sure to read the fine print. An introductory APR of 0% is tempting, but it’s more important to note the interest rate after the promotion ends. The national average APR is currently at 15.16%, according to CreditCards.com, with average low interest rates hovering around 12%.
Limit your card collection.
While travel hackers recommend opening multiple cards to stockpile introductory bonus offers, managing several cards can get confusing and lead you to overspend. If you struggle with credit card debt, stick with one reward card and focus on paying off the balance in full each month. A reward-rich card like Chase Freedom is a good option for customers who use credit cards for everyday expenses. The card offers 1% cashback on all purchases and 5% cash back on revolving “bonus categories” like restaurants, grocery stores and gas stations.
Use the rewards.
According to a study conducted by Colloquy, a market research company, $16 billion in reward points go unredeemed every year. Consumers often hoard rewards to save up for a valuable redemption opportunity, only to lose them due to inactivity, expiry periods and more. Learn exactly how rewards are collected and what’s required of you to keep those rewards before you sign up for a card. Then, use those rewards to offset gift purchases, travel costs and more so you’re not missing out on one of the biggest benefits of credit card use!
Say “no” to retail credit cards.
Applying for a retailer’s credit card in exchange for a one-time discount is tempting, but the initial savings of 10 to 20% is not worth the trouble. Store credit cards feature low credit limits, astronomical APRs of 23% or more, plus all the temptation in the world. Save money without the hassle by searching for coupons and promo codes using sites like CouponSherpa.com. For example, the sign-up bonus for a Macy’s credit card is 20% off your purchase, but you can use a Macy’s promo code for the same savings!
Take advantage of extra protection.
From purchase protection to extended warranties to rental car insurance, your credit card provides an extra layer of protection that many people don’t take advantage of. Take the time to review the benefits associated with your card, and confidently turn down the insurance coverage pushed by rental car companies and pricey extended warranty policies pitched by electronics retailers. These represent unnecessary expenses thanks to the perks from your credit card.
Ultimately, some people are just too tempted to spend with credit cards and it boils down to knowing your habits. If you’re currently recovering from overspending and are in the process of digging yourself out of years of debt, it’s best to avoid credit cards for the time being. Use cash or debit to make your purchases and train yourself to live within your means. Once you’ve established healthier spending habits, only then can you re-introduce credit cards into your life as a means of benefitting from rewards and such.
Andrea Woroch is a nationally-recognized consumer-finance expert who is passionate about helping Americans find simple ways to save more and spend less without sacrificing their lifestyles. She has worked with hundreds of national and regional outlets on consumer stories and has been interviewed by NBC’s Today, Good Morning America, Dr. OZ, CNN, MSNBC, FOX & Friends, ABC World News, Wall Street Journal, Money Magazine, New York Times, Kiplinger Personal Finances and many more. Andrea is also a dedicated writer covering various personal finance and consumer-spending topics for a variety of news outlets. Her stories have been published on Forbes.com, AOL Daily Finance, Yahoo!, Huffington Post, LearnVest, New York Daily News “Dollar Stretcher” and ClarkHoward.com. You can read more about Andrea and watch recent TV clips at www.AndreaWoroch.com.