Taking Control of Your Credit Cards

There are many potential benefits to buying on credit.

You can earn rewards like travel miles and cash-back bonuses simply for spending money.

Credit cards can also help you build up your credit score, whereas debit cards have no effect on credit ratings at all.

The ability to put a large purchase on credit also provides a grace period for paying it off; instead of needing the money in your bank account on the spot, you can come up with a workable payment plan.

Credit cards can also contribute to a debt cycle fueled by high interest rates.

According to NerdWallet, the average U.S. household with credit card debt carries approximately $6,741 in revolving balances.

They will also pay $1.141 in interest each year on average.

Trying to take control of your credit cards? Here are four tips to keep in mind.

Choose the Best Cards for Your Needs

Credit card offers are a siren’s song, promising us amazing rewards if we apply now — travel miles, retail points, cash back, gas rebates, etc.

It’s important to check in periodically to make sure you’re getting real value from those cards.

After all, it’s counterproductive to charge $500 worth of household goods to your card just to earn $50 off your next flight.

Use cards with a combination of relevant perks and reasonable interest rates. Avoid spending money in the pursuit of rewards when it will cost you more in interest.

Consolidate Your Debts for Lower Interest Rates

If high interest rates are making it difficult for you to pay down your balances on certain cards, you may benefit from transferring them to a new card with a zero-percent annual percentage rate (APR).

The interest rate may bounce back up after six months, a year, or 18 months, but it will buy you some time to tackle the balance without interest compounding in the background.

However, you will often pay a fee between three and five percent per balance transfer.

Another approach to debt consolidation is taking out a lower-interest loan, using it to pay off your credit cards, then repaying that single loan over time.

Pay More Than the Minimum Amount Due

Creditors typically give cardholders the option to make minimum payments each month, either as a flat fee (like $25) or a percentage of the balance (like two percent).

This represents the smallest amount you can pay to avoid late fees and delinquency.

But minimum payments do nothing to stop interest from accruing, which makes it an expensive path to repayment.

Sending the minimum payment is treading water when what you really need to do is swim to safety; it will take years longer and thousands of dollars more in interest this way.

Do whatever you can to make more than the minimum payment each month — create a budget and search for ways to reduce spending so you can start putting a dent in your credit card balances.

Avoid Closing Out Your Old Accounts

You may find yourself tempted to clean house by closing out all your credit card accounts, except the one or two you use most frequently.

Out of sight, out of mind — right? Not exactly. Your credit rating factors in the length of your account history and how much of your total available credit you’re using.

Closing out old cards will lower the average age of your accounts and boost your credit utilization ratio, both of which can cause your score to dip.

A better strategy is retiring the cards you no longer use, or spending a small amount you can pay in full each month on them to strengthen your payment history.

Taking control of your credit cards before they take control of you is easier with these tips.