NerdWallet’s New Year Debt Resolutions
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Get out of debt (the right way):
- If you have revolving credit card debt, ditch the rewards credit cards. They charge higher interest rates and higher fees than other cards, so you’re better off with a basic, no annual fee, low APR credit card, or even moving your debt to a balance transfer credit card that will allow you to avoid interest for 18 months or more.
- Vow to pay more than your minimum payment each month. Those minimum payments are specifically calculated to keep you in debt as long as possible, so the more you can pay now, the less you will pay later in accumulated interest. Auto-pay is the best way to do this, or to really be hands-off about it, have part of your paycheck direct deposited into an account for which you don’t have an ATM card. Then use that account only for credit card payments.
- Or better yet, pay the whole darn thing off! Confusing “credit” with “credit cards” can spell trouble. Just because you have plastic doesn’t mean you have to have debt. If it helps you stay disciplined and spend below your means, tell the credit card company to lower your credit limit. It will negatively impact your credit score at first, but if it allows you to pay your bills off, then it will save your money and your credit score down the line.
- Find yourself coming up just a little too short each month to pay your whole balance? Just leave your cards at home. They’re great conveniences for online purchases and such, but you don’t have to use them for every purchase.
- If none of these tips have worked for you in the past, maybe it’s time to cut the card. Debit cards force you to keep your spending in check, especially if you don’t opt in to overdraft “protection” (which you shouldn’t!). Some companies, like PerkStreet Financial, even offer debit cards that pay cash back rewards, so you can still get some of the benefits of credit cards.
Not in debt? Time to optimize your rewards:
- Many people go with the first 1% cash back rewards card that their bank pitches them, but there are too many cards out there that are a lot more lucrative. Use a credit card rewards search site like ours to find the one that’s perfect for your spending habits.
- The new world will be all about sly credit card companies increasing signing bonuses to win your business, but then watering down their rewards programs with higher annual fees, lower reward caps, and shorter expiration periods. So make sure you understand all the terms and do the math before you sign on the dotted line (all of which NerdWallet does for you).
- Consider a travel rewards card, since many these days offer enough bonus miles upfront for a free international flight, or free hotel nights. Make 2011 the year you finally see the Eiffel Tower, or the ruins of Machu Picchu, and make your credit card pay for it!
Advice for every year:
- Check your credit report quarterly, and make sure there are no errors. Errors can hurt your credit score, make it impossible to get a mortgage, or even hurt your chances of getting the job you want.
- Now may be the year you also want to start reading all those long, dry documents your credit card company sends you all the time. Even in the post-CARD Act world, your issuer can raise your interest rates and fees, but they have to give you 45 days’ notice. So if you catch them in the act, you have more than enough time to find a new card.