Juggling Your Credit Cards

So, you have a wallet full of credit cards. How do you choose the one you’re going to use every time you pay for something? Is it the card with the best rewards? Is it the card with the 0% introductory rate? Is it the only card you have that’s not maxed out?

The more credit cards you have, the more complicated it can be to figure out which one is the best choice for every purchase. When the statements come every month, do you pay off every credit card balance in full? If you can’t say yes to that, you should really pay attention to how you use your credit cards, how you pay down your credit cards, and how you choose your card for each purchase.

Rewards can be great; air miles, cash back, discounts at your favorite stores. Do you know how much you are paying in interest to get these “valuable” perks? If you carry a balance, you may not be getting “rewarded” at all; you could even be paying more in interest than these perks are worth. If you want to take advantage of a credit card with rewards, you should be sure to pay your balance in full every month by the end of the grace period to avoid paying interest charges. You could use this card for purchases you would make anyway, like gas and groceries, and make sure you have the cash to pay it all off every month.

0% or super-low introductory rates practically guarantee the average consumer will spend more than they should. Who can resist the offer of an interest-free loan? When the offer for this credit card comes in the mail, many consumers automatically apply for this credit account without even bothering to read the fine print. By the time the introductory period is over, the account balance has been run up, the APR skyrockets, and the account holder is stuck paying a lot of interest on things he might not have purchased if he had to pay in cash to begin with. You can take advantage of this interest-free loan for a major purchase as long as you plan to pay it off before the introductory period is over.

Department store credit cards might tempt you with automatic savings when you use their card. They might advertise, “Save an extra 15% on everything you purchase today with our charge card!” That may be a great deal today, but if you don’t pay that balance off before the end of the grace period, you’ll be paying an annual interest rate of more than 20%. Take advantage of that discount by using their credit card, and then pay off the whole thing before they start charging you that high rate of interest.

Read your entire credit card statement every month. A lot of people just skim over their statement, and they look at the available credit so they know how much more they can spend, and the minimum payment so they know how little they have to pay. That’s not good debt management. Gather up all your credit card statements and compare the interest rates so you know what you are really paying. You might remember the incentives that encouraged you to apply for the card in the first place, but the interest rates might have change since then. One late payment or going over your credit limit even once could have caused your interest rates to jump to the default rate, which may easily be 20% or higher. Avoid using the credit cards with the higher interest rates if you aren’t paying the balance in full every month by the end of the grace period.

Pay off all your credit cards as soon as possible, starting with one with the highest APR. After paying all your set monthly expenses, see how much money you have left to pay towards your credit cards. You’ve done a good job of managing your money if you have enough left over to pay off all your credit card balances; you should congratulate yourself because not everybody else can say that. If you’re like a lot of consumers, you probably can’t pay off all your balances at once. Pay the minimum payment required to your lower APR accounts, and pay as much as you can to the highest APR card. Do this every month until all your account balances are reduced to a manageable level. It may take months or possibly even years, but you’ll see a gradual progress over time as long as you don’t live beyond your means and only spend on what you need.

Get all your credit card debt reduced to a level you can pay off every month, so you can start using them as a valuable budgeting tool. Your credit cards come with the convenience of monthly-itemized statements, which can help you track your spending. You might want to use one card for regular necessities that you buy every month, one for travel and entertainment, and one with a great APR for large purchases that you know you won’t be able to pay in full right away. Using credit cards for all your purchases can be a simple way to manage your spending, as long as you use them responsibly. Abusing your credit cards and overspending is a sure way to financial disaster, but if you manage your debt wisely, you can enjoy the benefits of credit cards without the troubles they may lead to.