While you may have had your financial planning on the back burner for the summer, September is a good time to heat things up. Here are the Nerds’ top tips for managing and maximizing your credit cards as you head into the biggest shopping time of the year.
Plan for year-end spending
You’ll probably be thinking about the year-end holidays in September — and the extra money you’ll be spending. According to the National Retail Federation, Americans spent $6.9 billion on Halloween in 2015 and a combined $626.1 billion on Thanksgiving, Christmas, Hanukkah, Kwanzaa and New Year’s celebrations. If you expect you’ll need a few months to get your bills paid off, consider applying for a credit card with an introductory 0% interest period. A number of great rewards cards offer up to 15 months for both balance transfers and purchases. That way, you can earn rewards (and perhaps even a sign-up bonus) for spending you were going to do anyway, and avoid interest entirely.
If you already have a card that offers bonus cash back on spending in rotating categories, make sure you get maximum value from it before the categories change in October. For example, the Discover it® Cash Back offers 5% cash back at home improvement stores in the third quarter. So if you need to make a big trip to Home Depot, get it in before October, and you can get back 5% of what you spend.
Check your credit report
Personal finance articles are always telling you to get your credit report, and you know you should, but you don’t. You can get a free report from each of the three bureaus — Equifax, Experian, TransUnion — once a year. Why not make it a seasonal to-do? Get one report in September after your summer travels, another in January after the holidays, and the third in May, before you ignore your finances again during the summer. It takes only a few minutes to input your information at AnnualCreditReport.com, the federally authorized site, and download your report.
Make a plan to pay down credit card debt
If you’re dealing with debt, September is a good time to sit down and face the facts. Figure out exactly how much debt you have and use a calculator to see how long it will take to pay it off. Then see whether you can pay more each month on your credit cards to shorten your payoff timeline.
There are two popular strategies for paying down debt on multiple credit cards:
- The debt avalanche. With this strategy, you make the minimum payment on all your cards and then apply all the rest of your available money on the card with the highest interest rate. Once that one is paid off, move to the card with the next-highest rate, and so on. The motivator here is saving money on interest. It may take a while, but you’ll be chopping away at both the high interest and the balance until you’re debt-free.
- The debt snowball. This method provides an emotional benefit by letting you see progress faster. Here’s how it works: Take your credit card with the lowest balance, regardless of the interest rate, and pay as much as you can on that card while paying only the minimum on your other cards. Once you’ve got that card paid off, stop using it. Move on to the next card with the lowest balance and do the same. Eventually, all your credit card debt will be gone.
Once you’re out of debt, don’t close your cards, because that will hurt your credit score. Instead, charge only what you’re sure you can pay off during the grace period, before interest kicks in. You’ve worked hard to earn that grace period. Use it!