Credit cards are one of the most useful tools for saving money.
That may seem counter-intuitive. In fact, if you’re struggling with credit card debt, it might seem like an all out fantasy!
But if you have your credit cards under control, they can offer significant opportunities to save money.
Here’s your strategy guide for saving money with credit cards.
Eliminate your credit card debt. The simple truth is that credit card debt can derail your financial strategy. No matter how advantageous credit card rewards seem, they won’t offset the high interest rates that most cards feature.
So before you start leveraging the benefits a card can offer, take steps to eliminate your credit card debt completely.
The two most common strategies are the “debt snowball” and the “debt avalanche.”
Debt Snowball: Make only minimum payments on your other cards, and focus all of your financial firepower on your smallest balance. Once that’s gone, move on to the next smallest. Repeat until your debt is gone.
Debt Avalanche: Make only minimum payments on your other cards, and focus all of your financial firepower on the balance with the highest interest rate. Once that’s gone, move on to the next highest. Repeat until your debt is gone.
Another strategy is opening a new card with a 0% introductory APR. Then, use your new card to pay off your old card with no interest. This is called a balance transfer, and there are specialized cards with benefits tailored for this strategy. Check out this Nerdwallet article for a few options! (Note: Make sure you understand any fees that may be charged for a transfer.)
Build your credit score. It’s no joke—the higher your credit score, the greater the rewards you may earn. To help maximize your savings with a card, start building your credit score ASAP.
A simple step towards increasing your score is automating all of your loan payments. You can do this with your credit card, mortgages, and car loans. Once your credit crosses a certain threshold, look for cards with greater benefits. You might be surprised by the difference your score makes!
Choose benefits that align with your lifestyle. DO NOT get a travel card and then plan four international vacations to “maximize your benefits.”
Instead, choose a card that rewards you for your current habits, behaviors, and the way you live your life. It’s a chance to get something back for going about your daily routine!
Travel frequently for work or lifestyle? Consider a card that rewards you for flying or that waives foreign transaction fees.
Loyal to certain brands and stores? Look for cards that offer points for shopping with your favorites.
Above all, remember that credit cards ARE NOT FREE MONEY. The more disciplined you are with your credit card usage, the more you stand to benefit from the rewards.
Ask a financial professional about how you can leverage credit cards for your advantage. They can help you understand your financial position and develop a strategy to maximize your benefits.