NerdWallet’s Best Credit Card Tips for January 2021

As you craft financial resolutions for 2021, consider a few tips to improve your relationship with your credit cards.
Jan 5, 2021

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The new year is here, filled with financial lessons learned amid the pandemic. After 2020, you’re likely wiser, so it’s only fitting to use it to your advantage to meet your 2021 goals. Even if you’re barely scraping by, a few money moves might buy enough time to find your financial footing and strengthen your relationship with your credit cards.

As you ponder financial resolutions, consider a few credit card tips based on learnings from last year for a better 2021.

Set your credit cards up for success

Reflect on how you used credit cards in the last year and what you might have done differently.

Here are a few key points to consider:

  • Understand where your money is going. By logging into your account in the app or online, you might be able to see your spending in categories like dining, groceries, merchandise and charitable donations. Use this information to find opportunities to save.

  • Negotiate better terms with your issuer. If your account is in good standing, this might offer you leverage to request a higher credit limit, a lower interest rate or waived fees. It doesn't hurt to ask.

  • Automate payments where it makes sense. If you have a steady budget and a forgetful mind, automating payments can help you avoid credit card late fees which can run as high as $40. For less predictable budgets, switching to manual payments may help you avoid overdraft fees.

  • Get reacquainted with your credit card's features. Some credit cards' features may have temporarily changed due to the pandemic. That credit card you seldom use might now be ideal for purchases in 2021. Likewise, your spending habits might have changed, making certain cards more useful than others. You’ll never know unless you go through all of your credit card's terms, benefits and features to seek out the best ones.

Use credit card perks to strengthen your emergency fund

The prior year taught us the importance of having money saved for emergencies. Whether your budget is tight or you’re looking for more ways to top off an emergency fund, your credit card’s perks may free up some money.

The recommendation is to aim for an emergency fund that covers three to six months of living expenses, but even a $500 cushion is enough to cover a car repair or part of the rent.

Maximize rewards categories

You can allocate money for emergencies by redeeming cash back, points or miles for either a statement credit or a deposit into your bank account. Depending on the card, you might not get the most value when you redeem rewards this way, but it could be worth the loss if you're trying to keep debt in check.

Shift spending to the card that can offer the most value. A good bet is either a cash-back credit card that offers a solid flat rate on all purchases or one that offers rich rewards in bonus categories you're likely to take advantage of. Here are some examples of each kind of card.

Citi® Double Cash Card
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Whether you're dining out or paying a cable bill, you'll be able to use the 2% cash back to bolster your savings. For instance, if you put $2,000 a month on your card, you'd be looking at $40 cash back to save toward an emergency.

Bonus categories:

Discover it® Cash Back
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  • The $0-annual-fee Discover it® Cash Back. During Q1 of 2021, earn 5% cash back on up to $1,500 spent at grocery stores, CVS and Walgreens when you activate these categories.

  • The $0-annual-fee Chase Freedom Flex℠. During Q1 of 2021, earn 5% cash back on up to $1,500 spent at wholesale clubs, select streaming services, and on internet, cable and phone services when you activate these categories.

If you spent the $1,500 limit with either of these cards, you'd earn $75 back to go into your emergency fund.

Chase Freedom Flex
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Look for value in your benefits

Other perks and benefits may free up money for unforeseen circumstances. The Chase Freedom Flex℠, for example, offers a cell phone protection benefit for stolen or damaged cell phones when you use the card to pay the cell phone bill. You can avoid paying the cell phone company for coverage and allocate that money for emergencies. It can especially add up if you’re paying coverage for multiple lines.

Nerdy tip: With credit card debt, an emergency fund should still be a priority. Limit credit card use and save small amounts to work toward a goal. It might mean contributing less to your credit card payment for a few months, but as long as you meet the minimum payment, you can preserve your credit score.

Craft a strategy and set a deadline to pay down credit card debt

If you have credit card debt, it is critical to understand how you acquired it to avoid repeating patterns. You'll also need a plan to pay it down.

Determine how you Got There and How You'll Get Out

Examine if any new needs or unforeseen circumstances led you into debt. Further, consider debt-payoff strategies that may offer a way out. Balance transfer credit cards are an option that allows you to move high-interest debt from a different credit card issuer to a low-interest credit card. (Note, they require excellent credit.)

US Bank Visa Platinum Credit Card
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The $0-annual-fee U.S. Bank Visa® Platinum Card, for example, offers 0% intro APR for 20 billing cycles on purchases and balance transfers, and then the ongoing APR of 15.24%-25.24% Variable APR. That's a long interest-free period to make more progress on debt. You’ll have to pay a fee of either $5 or 3% of the amount of each transfer, but it’s worth it if it saves money on interest charges.

To make even more of a dent, seek other opportunities to free up money like a side job or lowering the cost of bills.

Choose a date

Once you’ve determined how to pay off debt, craft a more specific plan. Think about how much you can afford to contribute every month to pay it off and set a realistic date. Setting a date will keep you on track and accountable.

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