Imagine ordering a coffee and
slipping into a daydream. Are you also hearing Jennifer
Garner, ask "what's in your wallet?" Well, what's in your
wallet is very important. And as for all that credit card rewards
talk, she might be on to something. Most people should be able to
save at least a few hundred dollars every year just by using
the right credit cards. If you travel as much as Peyton
Manning or are a diehard Swifty trying to save on those
expensive concert tickets, as these commercials will tell you,
there's a card for everyone. And those cards will save you money.
Well, that is if you have the funds to make the rewards
worthwhile. They could be really useful, or they could
be dangerous. I think the biggest tip is to know yourself. Love them or hate them, those
plastic or metal cards that can instantly purchase anything from
a coffee to a car are no stranger to consumers, more than
80% of Americans own at least one credit card. Every time you
pay for something with a credit card, you're borrowing money
from the card issuer to cover your purchase. While it might
feel like it, it's certainly not free, you then have to pay that
money back either in full at the end of the month or over time -
with interest. The average credit card charges
about 20% interest these days. So it is a very profitable
business. So first things first. If you're
not in a place where you can pay that money back by the time it's
due, experts don't recommend you have a credit card at all. 20% interest on a balance that
you've accumulated and then you pay interest on top of that. I
mean, that's a really big hole that you're continuing to dig
and it's going to be really hard to get out of if you don't pay
your credit card balance. Credit cards require approval.
Once you're approved, the bank authorizes a credit limit or the
maximum amount of money you can borrow. That depends on factors
such as your income, your other debts, and how much available
credit you have on other cards. But here's the caveat: whether
or not you're approved depends on your credit score. Meanwhile,
your credit score is determined by your credit report the
information related to your credit activity activity you
might not have if you don't have a credit card. It's a catch 22. How do you
build your credit history? Well, the simplest thing is really to
get a credit card, use your credit card and pay it on time.
Credit scores generally range from 300
to 850. The higher the credit score, the more responsible
you're deemed. Credit scores not only affect whether or not you
get approved for credit cards, but also your credit limit. And
your interest rate on loans, mortgages and the terms lenders
may assign you. insurance providers landlords and
employers might also want to do a check to determine your
trustworthiness. If your goals are to buy a
house, get a car, get a loan. The first thing that you need to
do in order to build your credit history is to get that credit
card going. Those Jennifer Garner
commercials are for Capital One, but there are numerous companies
in the US that offer a wide range of credit cards. There's
the issuers American Express, Discover Bank of America, Citi,
Wells Fargo, and then there are the networks. They facilitate
transactions between the merchants and the card issuers.
The four major card networks are Visa, MasterCard, American
Express and Discover. Two of the world's largest card networks,
American Express and Discover, are also card issuers. There are
standard credit cards, rewards cards, balance, transfer charge,
student business secured limited purpose prepaid cards, and the
list goes on - different options that may or may not be right for
you depending on your personal circumstances. Standard credit
cards are the most traditional type. They have an Annual
Percentage Rate or APR, sign-up bonuses, annual fees, late
payment fees, balance transfer fees, foreign transaction fees
and the most exciting - rewards. There's actually a whole
industry dedicated to maximizing credit card points and miles.
Some people love it and they love going down that rabbit hole
and treating it like a game. Bankrate.com Senior Analyst Ted
Rossman earned more than $1,700 in rewards in 2022. But getting
the most out of your credit cards depends on your spending
habits, which perks would save you the most money. So how do
you choose? If your family spends a lot on
groceries, get a card that gives 5% or 6% cash back on groceries,
like that's a really nice inflation buster right there.
Maybe consider a second card that's just a solid flat rate,
something like 2% cash back on everything. Most people should
be able to get at least $200, $300, $400 a year just by using
the right cards. Rossman says the rewards that
get the most attention are often travel related flights, hotels,
rental cars, access to airport lounges, free or discounted TSA
PreCheck, priority passes, Global Entry or clear to get you
through those long airport lines. I think a really good strategy
for a lot of people is one of those transferable points cards,
something like Chase Sapphire Reserve or Amex platinum. Being
able to transfer to different airlines and hotels opens up a
lot of options. The sort of next level tip is within that - if
you find partners of partners like United's part of the Star
Alliance and American as part of one world. Then there's rewards for dining,
groceries, gas, and also complimentary memberships and
subscriptions. Big perks for many are extended warranty and
purchase protection. A couple of years ago, I
actually saved $300 on an Apple watch repair, the credit card
covered the replacement. But according to Bankrate,
Americans' favorite credit card reward is cash back. Think
especially now with high inflation, I mean,
who couldn't use more cash right? Whereas redeeming for
merchandise will likely not get you the most bang for your buck.
Other rewards include sign-up bonuses, fraud protection, and
having the ability to invest your money and take advantage of
interest rates. Another thing to consider is how much work you're
willing to do. Are you that person who's going to tape notes
onto your cards to remind yourself which should be used
for different types of purchases? I know some people that have 30
or more credit cards, and they have really good credit, and
they get really good perks, and they're constantly flying first
class for free. Now that's not for everybody. Of course, the
average American has about four credit cards. But even with four
cards, sometimes there can be a game element to this. Having multiple cards and
playing that rewards game can get you some substantial sign-up
bonuses, like the Capital One Venture Rewards credit cards'
75,000 miles, or Ink Business Unlimited's $900 in cash back. If you are playing this rewards
game, which a lot of people like to do, because they like that
upfront bonus, you're getting a new credit card, and then you
close it out, you're losing that credit history. So my
recommendation is not to do that. Only use a credit card if you
can use it responsibly. American credit card balances
reached $986 billion in the last three months of 2022. The big fork in the road is whether or
not you carry a balance. If you pay your credit cards in full
every month, then yeah, I think you should use your credit card
for everything because rewards are great, they can really add
up over time. Even though it's simple math, a
2022 survey found that among credit card holders who carry a
balance, cash back was more than four times as popular as a low
interest rate. Meanwhile, a large share of those who owe
debt - 40% - don't even know the interest rate for the primary
card on which they owe money. One of the biggest things that
we see about the spending of credit cards and those that are
using it incorrectly are those that are either from lower
income households, those that are uneducated in this because
no one is talking to them about money. A recent Bankrate survey found that 30%
of those without a high school degree didn't redeem the rewards
compared to 16% with a four-year degree and the lower an
American's income, the more likely they were to let those
rewards sit as well. More than 30% of those with annual
household incomes below $50,000 left value on the table,
compared to about 20% of those with incomes between $50,000 and
nearly $80,000. And just more than 10% with incomes of
$100,000 or more. SageMint Wealth managing partner Anh Tran
says culture plays a big part in how people spend. I grew up in an immigrant
family, I wasn't taught about personal finance, you just make
as much money as you can and get yourself out and build wealth
for yourself. Tran recommends having two
credit cards and three if you're a business owner: one for
primary expenses, a second as a backup, and a third to keep
business expenses separate. She says there should also be
thought going into your credit card limit and your spending
ratio. Let's say you have one credit
card, and you've got a $10,000 limit on there, and you spent
all the way up to $9,000. That actually will lower your credit
score because your credit-to-debt ratio is not good
because you've used up most of your credit. So the rule of
thumb is I would say try to stick to around 30% and using
what your credit availability is. And so that's why having a
second card will give you a little bit of leeway and giving
you more credit to spend. For those with credit card debt
while experts don't recommend you open multiple credit cards
and try to maximize your rewards, that doesn't mean you
shouldn't work on ways to build your credit so that you can get
to that place. If you have credit card debt, no shame
a lot of people do - about half of card holders, but you need to
put your interest rate first. So maybe seek out a 0% balance
transfer card or stick to the lowest rate card you can find or
just use cash or debit until you're debt free. There are a lot of cash back
rewards cards that do not have annual fees that will give you
1% back on all your purchases, and that is probably the most
simple. Now let's say you get to a place
where you've got some plastic in hand, and you're feeling good
about those rewards. The work doesn't end there. She says you
should continue to reevaluate your debt and credit cards at
least once a month Tracking your finances, whether
it's on an Excel spreadsheet or using an app like mint.com,
something that will track what all of your assets, all of your
debt and liabilities are so that you know where everything is. And if you're racking up those
points, use them. Almost a quarter of rewards credit card
holders haven't redeemed any rewards in the past year. And
that's an improvement from the 31% of those who didn't in the
preceding 12 months. It doesn't get more valuable
over time. In fact, a lot of times these programs change
their rules in ways that the industry calls devaluations like
basically it costs more points or miles to get the free flight
or the free hotel stay. So use them sooner rather than later.
And then cash back can lose value to inflation. Most people are scared of money
and you shouldn't be. If you know the facts and you
understand how money works, it can be really empowering.
