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Make Sure Your Plastic Works For You

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The Tampa Tribune

Published: August 10, 2008

How many credit cards do you have in your wallet? And - perhaps a better question - are you taking advantage of them, or are they taking advantage of you?

Unfortunately, for many people, it's the latter. Month after month, they throw a minimum payment toward their credit card debt, only to get the next bill and see that the balance has gone up, not down.

I believe credit cards are a great - and often necessary - tool to keep in your financial arsenal. But you have to use them wisely.

So how do you secure the upper hand in the relationship between you and your plastic?

•Consider your lifestyle. I'm pretty careful about what I put in my wallet. However, I do rely on my credit card for everyday purchases. And if I'm giving the credit card company that much business, I better be getting something back in return. I choose to take my reward in the form of airline miles, because I travel pretty frequently and I know I'll use them. But these days, a lot of people are going for gas or cash-back cards. The trick is to think about what reward you'll use, because you don't want to end up with a bunch of miles on your hands and nowhere to go.

•Examine the fine print. And I do mean examine, with both a fine-tooth comb and a magnifying glass. There are loopholes in a lot of these deals, no question. That's not to say they aren't worth it, but you have to look for things like caps on the amount of the reward you can receive, how easy it is to get your earnings (do they give you a credit on your statement, for instance, or do you have to wait for a check in the mail?) or tiered programs that boast 5 percent cash back, but don't kick in until you spend $10,000. If you're a big spender, it may well be worth it, but otherwise you'll want to find a program that starts with the first dollar you charge.

I also suggest calling the credit card company and asking whether the gas station or store you frequent is part of the program.

•Don't forget your budget. You knew it was coming: Getting cash back for the money you'd spend anyway is great; spending money to get cash back - or frequent flyer miles, hotel points, dollars toward a car or whatever you're collecting - is not. Don't use a rewards program as an excuse to charge a new dress or go on a vacation you can't afford. These programs are perks, but they're certainly not lucrative enough to warrant spending money you don't have. By the same token, if you're using a credit card for the majority of your purchases, you still have to stick to a budget and you need to be absolutely sure that you can pay that bill off in full when it lands in your mailbox

•Use balance transfers. If you have a decent credit score, you probably receive at least one or two credit card offers in your mail each week. Often, they offer lucrative deals like zero percent APR for six months or even a year. These cards can be a great way to pay down the debt you're carrying on another, more expensive, card, as long as you're careful. For starters, balance transfers do not come free anymore, so moving your debt is going to cost you.

"Everyone used to have a cap of about 3 percent of the balance, up to $90 or so, but a lot of companies are now removing that cap," says Ellen Cannon, managing editor of Bankrate.com. When you're evaluating offers, you want to look for that cap, and ideally you should pay no more than $100 for the transfer. Depending on your balance and the APR on your original card, a transfer can save you big in terms of interest. NOTE: An offer of a great balance transfer in the mail is no guarantee that you'll qualify. Just another reason to keep your credit score up around 700 - or higher.

With reporting by Arielle McGowen. Jean Chatzky is an editor-at-large at Money Magazine and serves as AOL's official Money Coach. She is the personal finance editor for NBC's "Today Show."

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