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In this article:
- 1. Take a Vacation at a Discount
- 2. Take Advantage of Pandemic-Focused Rewards
- 3. Step Up Your Cash Back Game
- 4. Supplement Your Current Rewards Strategy
- 5. Pay Down Debt Interest-Free
- 6. Cover Necessary Expenses and Take Your Time to Pay
- 7. Take Your Credit to the Next Level
- Finding the Right Card for You
When used strategically and responsibly, credit cards can be your ticket to upscale experiences, cash back on everyday purchases and lots of travel perks. They can also help you strengthen your credit and open the door to more financial opportunities in the future, such as loans and credit with more favorable interest rates.
Credit cards are a great way to gain more purchasing power—as long as you have a plan to pay off your balance each month. Accrued interest charges, and the credit impact of a growing debt, will offset any advantages of a new card if you wind up carrying a balance.
But if you make only the purchases you can afford to pay off, here are a handful of reasons to seek out a new credit card this new year.
1. Take a Vacation at a Discount
With good or excellent credit, you may qualify for a travel rewards credit card and earn points or miles, which you can use to cover some or even all of certain travel expenses.
For example, the Capital One Venture Rewards Credit Card offers 2 miles per dollar spent on purchases, plus an impressive one-time bonus when you first get the card and meet a spending requirement. You'll get 60,000 bonus miles, worth $600 toward travel, when you spend $3,000 within 3 months of account opening.
Once you've earned enough rewards, you can redeem them for travel through Capital One's travel portal or book travel wherever you want and request a statement credit.
If you have some big purchases on the horizon, like furniture for a new apartment or a wedding, now may be a good time to get a travel credit card and earn a sign-up bonus you can use to help book your first post-pandemic trip.
2. Take Advantage of Pandemic-Focused Rewards
U.S. consumers have made changes to their spending habits during the coronavirus pandemic, and many credit card companies have responded by upgrading their cards, even if only temporarily, to provide more value to cardholders.
For example, as more people are cooking at home instead of dining out, the Chase Sapphire Reserve® premium travel credit card allows cardholders with excellent credit to earn 3 points per dollar on up to $1,000 each month in grocery store purchases through April 2021. And through June 2021, the card's $300 annual travel credit will be used to reimburse you for gas station and grocery store purchases up to that limit.
For long-term value, the card also offers a suite of luxury travel perks and an incredibly valuable rewards program. That said, it also has a $550 annual fee, which may be too much for many people right now.
If you want a cheaper option, the Chase Freedom Flex? is giving new cardholders 5% cash back on up to $12,000 in grocery store purchases (not including Target and Walmart) during their first year with the card, as long as you're approved before January 13, 2021. That's worth up to $600 in bonus cash back, and it's on top of the card's regular welcome offer, which will get you a $200 bonus after you spend $500 in the first 3 months.
3. Step Up Your Cash Back Game
Travel rewards credit cards offer a lot of value, but cash can be a lot more appealing for some during an economic downturn. Thankfully, there are plenty of excellent cash back credit cards on the market.
For example, the Citi® Double Cash Card - 18 month BT offer, from our partner, offers a flat 2% cash back on every purchase you make—that's 1% back when you make purchases and 1% back as you pay them off. Unfortunately, though, there is no one-time bonus for new cardholders.
In contrast, the Chase Freedom Unlimited® will give you 5% cash back on travel booked through Chase, 3% back on dining and 1.5% back on everything else. On top of that, you'll get $200 when you spend $500 in the first 3 months plus 5% back on up to $12,000 spent at grocery stores (not including Target and Walmart) during the first year as long as you're approved before January 13, 2021.
As you consider which card to choose, think about your immediate cash needs, as well as your long-term priorities. If your budget is tight right now, it may make more sense to pick a card with a decent intro offer. But if you don't need a bunch of cash upfront, consider which card will give you the most value in the long run.
4. Supplement Your Current Rewards Strategy
Using just one credit card for all of your purchases keeps things simple, and there's nothing wrong with prioritizing simplicity. But if you're looking for opportunities to maximize your rewards, applying for a second card to use alongside your primary card may be the way to do it.
To give you an idea of the potential, let's say you have the Chase Freedom Flex?, which offers 5% cash back on up to $1,500 spent in quarterly rotating categories (when you activate), 5% cash back on travel booked through Chase, 3% back on drugstores and dining at restaurants and 1% back on everything else.
The card offers some impressive rates on everyday spending categories. But it's still likely that most of your spending will net you just 1% back, which isn't spectacular.
So if you supplement that card with the Citi® Double Cash Card - 18 month BT offer, you can use the Chase card for its bonus rewards and the Citi card for everything else, ensuring that you always earn up to 2% back on everything.
Of course, using multiple credit cards can complicate things, especially if you throw more than two into the mix. Set up automatic monthly payments to avoid missing a payment, and consider using budgeting software such as Mint or You Need a Budget to keep up with your transactions on each card.
5. Pay Down Debt Interest-Free
Balance transfer credit cards are a powerful debt-reduction tool. They can provide interest-free introductory periods of 12 months or more, which let you pay off debt without accruing extra charges.
You'll likely pay a balance transfer fee, which is typically 3% or 5% of the transferred balance, and you generally must move balances to a new credit card issuer. You can't, for instance, get a balance transfer card from American Express to pay off another Amex credit card.
One solid balance transfer card is the Citi® Diamond Preferred® Card, from our partner, which offers an introductory 0% APR on purchases and on balance transfers requested during the first four months for 18 months. After that, the APR jumps to a variable 14.74% to 24.74%. The upfront balance transfer fee is 3% of the transfer amount, with a $5 minimum.
If you qualify and you commit to paying off your debt by the time the introductory period ends, you could make use of a valuable financial strategy.
As an example, let's say you have $6,000 on a card with a 20% annual percentage rate (APR). If you were to make a plan to pay off that balance in 18 months, your monthly payment would be roughly $389, and you'd pay about $994 in interest. But if you were to open the Citi® Diamond Preferred® Card and transfer your balance, you'd pay $343 per month. Even with the $180 balance transfer fee, you'd save about $814.
In some cases, you could get a balance transfer card that also offers rewards on ongoing purchases so that when your debt is paid off, you can continue to take advantage of the card. The Citi® Double Cash Card - 18 month BT offer is a good example of that.
Once you've paid off your balance, keep debt in check by paying your bill on time and in full every month going forward.
6. Cover Necessary Expenses and Take Your Time to Pay
Balance transfer cards can be excellent if you already have a balance. But if you have a major expense coming up or you're struggling to just get by right now, a 0% APR credit card could give you some breathing room.
With the Capital One Quicksilver Cash Rewards Credit Card, for instance, you'll get an intro 0% APR on purchases for 15 months, after which the variable APR is 15.49% to 25.49%. This means you can use the card for necessary purchases, and you'll get more than a year to pay off the balance with no interest charges—just be sure to pay at least the minimum every month to avoid losing the promotion. The card also offers ongoing rewards and a one-time bonus for new cardholders.
If you're considering a 0% APR credit card, just be sure to avoid using it for unnecessary expenses, especially if your budget is tight. The appeal of paying no interest could tempt you to overspend, and once the promotional period is over, the remaining balance will be subject to the card's regular APR, which can get expensive.
7. Take Your Credit to the Next Level
If your credit isn't yet in good enough shape to qualify for the travel or cash back credit card of your choice, set your sights on a credit card that can get you there. Look into secured credit cards, which require a cash deposit that typically becomes your credit line. Since secured cards are typically for those new to credit or rebuilding from previous setbacks, the deposit protects the lender from the risk that you'll make purchases you can't pay back.
Beyond the deposit requirement, a secured card works like any other credit card. But use it sparingly: Building credit is the goal of the product, and keeping your balance as low as possible will keep your credit score strong.
Over time, your positive payment history and low credit utilization rate—the percentage of your credit limit you use—can help you build your credit and make it easier to get the card you want in the future.
One of the better secured credit cards on the market is the Discover it® Secured. It's one of the few secured cards that offer rewards, giving you 2% cash back on up to $1,000 spent each quarter on gas and dining, plus 1% back on everything else. Plus, Discover could review your account and transition you to an unsecured card after as little as eight months, giving your deposit back in the process.
Alternatively, if you're a college student, there are student credit cards that don't require you to make an upfront security deposit. The Discover it® Student Cash Back and Journey Student Rewards from Capital One are great options to help you start your search.
Finding the Right Card for You
There's no single credit card that's best for everyone, so it's important to consider a few different factors before you pick one for you. For starters, it's important to apply for a credit card that you have a good chance of getting.
Each card has a target audience based on their credit score range. Check your credit score to see where you stand, and consider using Experian CreditMatch™, which can provide you with personalized credit card offers based on your credit profile.
Next, if you're getting a rewards credit card, think about your spending habits. If you spend a lot on groceries, for instance, focus on cards that offer higher rates on those purchases. The same goes for dining, gas, travel and any other major spending category.
Finally, consider other preferences and goals. If you want to pay off an existing balance, for example, your best bet is a balance transfer card. If you have a big purchase coming up and you want to finance it over time, a 0% APR card is a better choice. As you shop around and compare credit cards, think about what you want to get out of the card and consider all the features to find the one that's best suited for you.