According to an early 2018 survey by MagnifyMoney, the average shopper racked up $1,054 in holiday debt during the previous shopping season. This is the likely result of overspending on gifts and holiday parties, but one thing is for certain: Far too many consumers use credit to buy items they just can’t afford, and they pay for their choices dearly.
But, what about the rest of us? What about those who use credit cards wisely and for purchases we can afford to pay back?
What about people who have the discipline to use credit cards in a way that benefits them instead of the banks?
While many people will spend the new year digging out of holiday debt, the rest of us have the potential to use credit cards to improve our financial situations — or our lives — for the better. Here are a few ways credit cards can further your new year’s money goals.
Getting Out of Debt
Credit cards are usually the culprit when consumers rack up more debt than they can afford to pay back. After all, credit cards are insanely convenient to use and easy to lean on as a crutch when money is tight.
However, certain types of credit cards can help you pay down debt instead of adding to the pile. The key is signing up for the right card and using it in a way that is advantageous to your finances.
Credit cards that can help you get out of debt are largely known as 0% balance transfer cards. Most offer 0% APR for 9 to 21 months, which could be enough time for you to make a huge dent in the balances you owe. There is one caveat, though; most balance transfer cards charge a 3% or 5% balance transfer fee for transferred balances.
Take the Discover it® Balance Transfer offer, for example. This card will grant you 0% APR for 18 months on balance transfers (then a variable rate of 14.24% to 25.24%) with no annual fee. The kicker is, you do have to pay a 3% balance transfer fee upfront. That works out to $300 for every $10,000 you transfer, which isn’t a small amount.
But since the amount of interest you’re not paying could work out to considerably more than $300, transferring a balance could be well worth it. After all, the average credit card interest rate is up over 17% and some consumers are paying even more each month.
If you hope to use a balance transfer card to get out of debt in the new year, make sure you do it the right way. Transfer all your balances to your new card to score 0% APR then pay as much as you can off before the introductory offer ends. Most importantly, make sure you stop using credit cards until you’re debt-free. If you keep spending on credit, you are working against your own goals.
Saving for the Future
If you want to save more money for the future, you may think a credit card is the last thing you need. However, some credit cards can help you save provided you pay your balance off each month and don’t use credit as a reason to overspend.
With a cash-back credit card, for example, you could earn 1% to 2% or more back on everything you buy. Use your credit card as if it were cash and pay your bill off each month, and you can begin accruing a stash of fun money you can use any way you want.
Also note that some credit cards even let you use rewards to save for college! The Upromise Mastercard® is a good example since it offers 1.25% back for each dollar you spend plus a 15% bonus when you link your account with a qualified 529 College Savings plan.
Planning a Family Vacation
Finally, don’t forget how travel credit cards might be able to help you reach your travel goals in the new year. Not only can travel credit cards help you earn points good for airfare, but you can also rack up rewards good for hotel stays or rental condos as well as other components of your trip.
Imagine for a moment you signed up for the Chase Sapphire Preferred® Card. This card’s current offer is for 60,000 bonus points after you spend $4,000 within the first three months of account opening. You also earn 2X points on travel and dining at restaurants worldwide and 1 point per dollar spent on all other purchases. There is a $95 annual fee with this card.
There are an endless number of ways you can use these points, including for 1:1 transfers to popular airline partners like Southwest, United MileagePlus, British Airways, and JetBlue. However, you can also transfer points to hotel programs like World of Hyatt, Marriott Rewards, and IHG Rewards. If you don’t like those options, you can also redeem points for any type of travel through the Chase Ultimate Rewards® portal, and you even get 25% more travel for free when you use points to book.
Does that sound too complicated? Consider an easy travel credit card that offers flexible travel credit instead. The Barclaycard Arrival Plus® World Elite Mastercard® offers 2x points for each dollar you spend plus 70,000 bonus points after you spend $5,000 on purchases within 90 days. There’s an $89 annual fee, but it’s waived the first year. The best part is, you can redeem your points for any type of travel you want at a rate of one cent per point. With that redemption rate, the 70,000 bonus points are worth $700 in travel.
The Bottom Line
Credit cards can be a boon to your finances if you know how to avoid their pitfalls, but they can also ruin your life if you let them. Before you decide to use credit cards to help yourself as a new year’s goal, make sure you know what you’re doing and capable of using credit wisely.
If you don’t have the discipline to use credit cards for regular purchases and pay your balance off right away, pursuing travel rewards or cash-back isn’t for you. Of course, the same is true if you wish you could score 0% APR on transferred balances but know you can’t stop using credit cards for regular spending.
Do you have what it takes to use credit in a way that improves your life? Only you can decide.
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