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Making Credit Cards Work for You

Posted by: Nick L. in Tips

Credit cards can be an important part of managing your financial situation when used correctly, but what do you need to know about being smart when it comes to credit cards? Making credit cards work for you can be confusing, but here are some tips to help you get started.

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According to Lendingtree, the average credit card interest rate in the US is 23.84%. Remember that this is an average. If you have great credit, you probably have a better rate and if your credit is poor, it can be nearly 30% interest. If you are like most people, this may come as a surprise to you, but credit card rates have steadily increased over the past decade.

The good news is you can avoid interest if you do not carry a balance on your credit cards. By paying off your charges monthly, you will not pay any interest regardless of the rate of your card. Paying your bill on time you will also show good credit habits and avoid late fees and penalty interest rates.

If you are making a purchase of a big-ticket item, such as furniture or appliances, go ahead and use a payment plan that will allow you to make payments over a set amount of months interest free, but do pay it off before the end of the promotional period. These types of cards will often give you a set amount of time interest free, however will charge interest back to the date of purchase if you fail to pay it off within that time.

Use it as a tool

Using a credit card can streamline how you spend money day to day, but it must be used responsibly. Some people choose to pay for most expenses on their credit card and pay only one bill at the end of the month to maximize credit card perks such as cash back or travel benefits.

Credit cards are one of the safest ways to conduct business such as online purchases and often have tools to protect you from fraudulent activities. When using a credit card, you protect money that you have in your bank account should someone take your card number while you are making a purchase. Compared to the process of reporting fraud on your bank account, reporting credit card fraud is fast and hassle free. They will typically reverse the transaction and shut down the card quickly. You will have a new number and new card within days.

Credit cards can also help you track your spending, plan your budget, and monitor credit. Many credit card websites offer you the ability to track your spending and break it down by type. This can help you to diagnose your spending habits and determine how to be smarter with your money. Live credit monitoring and score modeling is often found on credit card websites. For younger consumers or those trying to restore their credit, this can be a powerful way to move you forward financially.

Avoid Pitfalls

Credit Cards can offer a lot of great perks ranging from cash back to points that you can redeem for travel. It’s important to read the fine print on these types of cards to determine if you can make the benefits work for you. For example, airline cards are notorious for offering free baggage, companion flights or statement credits. This can be very attractive especially if you are looking to save money on your next vacation. Most of the major airlines offer similar cards, although they are advertised as “no annual fee”. If you read the fine print, you will see that they carry significant fees after the introductory period. So, you may get some perks, but if you keep the card past the first year, you may find a hefty annual fee after that. The better the perks, generally the higher the costs associated with the card. Now, if you fly more than a few times per year on the same airline, the $100 annual fee may be less than paying all the baggage fees.

Department store cards often offer coupons and discounts to card holders. These are generally designed to keep you shopping on a regular basis. If you get free shipping and a 10% discount on your order you will come back for more. If they sweeten the deal by giving you a coupon for your next order and give you a range of dates to use it by, you may find yourself shopping again in a week or so. Before you know it, you may find yourself shopping way more than what you would have if you were not constantly being enticed to shop. If you must spend money to save, you may not actually be saving. If you shop too much, you may end up with a balance that you didn’t intend to have.

Credit card companies would not offer enticing benefits if the deck wasn’t stacked in their favor. It really is about assessing the benefits and costs and determining if there really is a savings, or if it is just another way to win your business or cost you money. While some consumers have mastered the art of using credit cards, the Federal Reserve Bank of New York reports that Americans owed $986 billion dollars in credit card debt at the close of 2022. Remember, interest paid on unpaid balances will very quickly outweigh any perk a card has to offer. If you find yourself tending to accumulate debt while using cards, it may be better to just stay out of the game.

Rebecca Agamaite

Investment Advisor Representative 

Rebecca joined the firm in 2011 as an Investment Advisor Representative. In this role, she works with clients to manage their investment assets and help them obtain their financial objectives. Rebecca brings a great deal of experience to the team having worked for several years at Marshall & IIsley Bank and MetLife. She earned a Masters of Business Administration degree (with an emphasis on finance) from Concordia University.

Advisors Management Group, Inc. is a registered investment adviser whose principal office is located in Wisconsin.   Opinions expressed are those of AMG and are subject to change, not guaranteed, and should not be considered recommendations to buy or sell any security.  Past performance is no guarantee of future returns, and investing involves multiple risks, including, but not limited to, the risk of permanent losses.  Please do not send orders via e-mail as they are not binding and cannot be acted upon.  Please be advised it remains the responsibility of our clients to inform AMG of any changes in their investment objectives and/or financial situation.  This commentary is limited to the dissemination of general information pertaining to AMG’s investment advisory/management services.  Any subsequent, direct communication by AMG  with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.  A copy of our current written disclosure statement discussing our advisory services and fees continues to remain available for your review upon request.

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