By Matthew Malone
Never mind that debt is one of the surest ways to watch your financial world crumble. If you’ve got some discipline and a few good cards, you can use them well to your advantage. The basic premise–easy to understand, but hard to follow–is to use your cards like cash. Don’t spend what you can’t safely pay off each month. And while doing so, be strategic about your card use and spending. By “working” your payment cycle and racking up valuable points, you can make the credit card companies work for you. Here are a few tips to get you there.
Don’t pay until you have to
This isn’t a promotion for paying late charges on your credit card account. Those charges will quickly wipe out any gains from efficiently managing you accounts. Instead, take advantage of the automatic pay feature available from most card companies, and set the due date to the latest allowable without a fee. That way, you’ll take the most advantage from what is essentially an interest-free loan from the card companies. In the meantime, keep your cash in an interest bearing account. It may only earn you a little bit of money each month, but it can add up over a lifetime of spending.
If you must transfer, don’t pay for the privilege
We’ve all seen enticing ads for no-interest balance transfers from credit card companies. They can be a great deal if used correctly–you can save hundreds, even thousands, depending on the size of the transfer. But, be warned: the fine print for most cards includes an upfront fee based on a percentage of the amount transferred. It’s typically three percent, or $30 per $1,000 transferred. Depending on the rate you pay on your existing card, the numbers could still work out in your favor. But call it “interest” or call it a “fee,” it’s still money out of your pocket.
You can’t go wrong with cash
Those flat-screens and “ham-of-the-month” club rewards may look enticing, but it’s hard to argue against a card that pays you in cash. Several cards pay back one percent of your annual purchases; others, like the Chase Freedom card, pay even higher percentages for certain types of purchases (gas, groceries) or from certain merchants. The cash-back offers are usually more valuable than using the points for merchandise, as anyone who’s ever used 250,000 points for a treadmill will tell you.
Not all rewards are equal
As you’ve just read, cash-back can be the best payoff for using points. However, there are cards where points are the most lucrative trade in. Take the American Express Starwood Preferred Guest Card, which is frequently touted as among the best cards around. You earn points that can be used for the company’s hotels as well as a number of popular frequent flier programs (transfer 20,000 points and they’ll even throw in an extra 5,000). Depending on the hotel, you might book a $250 hotel room for 3,000 points. That’s a whopping eight percent return on your spending.
Shop your card’s site
Many card companies arrange special discounts with merchants for the cardholder, but you often have to shop through the credit card’s own web site to take advantage of the deal. When you have the time to shop around, it’s always wise to check your card’s site first. You might find an offer that saves as much as 10 percent on your next buy.
Matthew Malone writes for the leading Roth IRA and online retirement planning resource, RothIRA.com. He is a CBS SmartPlanet contributing writer whose work has appeared in The New York Times, Cosmopolitan, Smartmoney.com, Fortune.com, Forbes.com, and other publications.