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However you feel about formal New Year’s resolutions, the beginning of the year is a great time to evaluate your finances. If you haven’t already, take some time to set some financial goals to work toward this year. Some goals might be super specific, such as paying off a certain amount of debt. Others may be more general, like spending less on nonessentials or increasing your savings.
Credit cards can be a valuable tool in working toward many goals. New and existing accounts can help you develop and stick to a budget, pay down debt, and achieve wealth and well-being. Here’s what to do, starting now.
Use your credit card statements and tools to create a budget
Developing a budget can be challenging without historic data. Thankfully your credit card statements can help you identify your spending trends so that you know where you need to make changes. Download about six months’ worth of your statements, then read them and take notes:
- Evaluate your transactions. You spent on what, where and how many times? Pay special attention to automatic charges, such as gym memberships, meal boxes and streaming services.
- Look for revolving debt. Look for months when you didn’t pay your statement balance in full. Ask yourself why and if it was avoidable.
- Review the added fees and interest. Were you hit with fees or interest charges? Consider now how you would have better spent that money.
Almost all credit card issuers have mobile apps, and some of these tools provide spending breakdowns by purchase category. If yours does, check out the results. It can help you identify which are your most common (and costly) spending categories. With this information in mind, create your budget. In one column, list how much you’ve been spending each month on the following:
- Housing — Rent or mortgage (with insurance and taxes), upkeep
- Transportation — Car payments, insurance, fuel, maintenance, parking, tickets
- Groceries — Supermarket food and household items
- Dining and drinking out — Fast food, restaurants, cafes, bars
- Utilities — Power, water, garbage, cellphone, internet
- Medical — Insurance premiums, copayments, prescriptions, supplements
- Other insurance — Life, disability, identity theft protection
- Education — Tuition, books, materials
- Personal — Gym, barber/salon, spa, clothes, home decor, gifts
- Entertainment — Streaming services, movies, games, sports, concerts
- Travel — Vacations, weekend trips, air and train fare, accommodations
- Saving — Fixed sum for savings and investments
- Debt — Credit card, student loan and personal loan payments
- Miscellaneous — Anything that doesn’t fit into the above categories
Subtract the total of this column from your monthly net income. If you’re spending more than you’re comfortable with, decide where you want to make changes in a second column. Do you want to reduce your dining expenses and add the difference to your savings? Or maybe you want to increase your vacation costs and cancel all streaming subscriptions.
This is your opportunity to direct cash where you want it to go. If your goal was to gain control of your money, this action will make you feel powerful!
Boost your bottom line with rewards earnings
If your goal is to earn more money, your credit card can come in handy. Cards with rewards programs will pay you when you charge, and you’ll profit when you pay your balance in full each month.
For example, let’s say that your budget revealed that you spend $2,000 each month. If you use a credit card with unlimited 2 percent cash rewards, such as the Wells Fargo Active Cash® Card, you will earn $40 in cash back each month.
You could also use a card that pays out higher percentages in certain categories. The Blue Cash Preferred® Card from American Express, for instance, offers a tiered cash back program. It can be great for a large family with many mouths to feed because it offers 6 percent cash back at U.S. supermarkets on up to $6,000 spent per year (then 1 percent back). Max out that category, and you’ll earn $360!
Return to your credit card statement to ensure your rewards categories are working for you. If you’re not maxing out the highest earning categories, they may not make sense for your lifestyle. Check out the cards that do offer high rewards on the things you spend a lot on, and open the one that fits your credit profile and charging habits.
In addition to cash back cards, also look at credit cards where you earn points or miles. If you have one of these accounts now, review your rewards bank. You may have racked up enough for everything from a round-trip flight or a bunch of gift cards. If your goal is to travel more in upcoming years, a travel credit card that’s co-branded with your favorite airline or hotel chain will help you get there.
Cut the cost of a big expense with a sign-up bonus
While hoping a pile of money will fall into your lap is a wish and not a goal, opening a new credit card to score a big bonus is an achievable objective. You can use it to slash the cost of a major expense.
What to buy something that costs $500? Consider a card like the Capital One Quicksilver Cash Rewards Credit Card, since you’ll earn a $200 cash bonus after spending that sum on purchases within the first three months of opening the account. If you put that sum toward your $500 purchase, you’ve effectively earned a 40 percent discount — and on top of that, you’ll earn rewards on the purchase.
Or maybe you have a trip of a lifetime on the horizon. Look for a card that matches your traveling style. For example, if you prefer to stay at Hilton Hotels, check out the Hilton Honors American Express Card. There is no annual fee, and you’ll earn 80,000 Hilton Honors Bonus Points after spending $1,000 in purchases in the first 3 months of Card Membership.
The key here is that the card should work for you well beyond the welcome bonus. Apply prudently, thinking of both the present and the future.
Take advantage of 0 percent APR offers
If you have discovered that you’re carrying high-interest debt, a great goal is to pay it off efficiently. One way is to move your debt to a 0 percent APR balance transfer card for a fee of usually two to three percent. Once done, you will have a fixed amount of time to repay your balance with no interest added to it at all. Some of these offers are very long, too — up to 21 months.
Another way to use these offers is to find one that gives you 0 percent APR on new purchases. Maybe you want to buy something that is very expensive, such as a new laptop for your college-bound daughter, but you don’t want to spend $2,000 upfront. A card like the BankAmericard® credit card will give you 21 billing cycles of interest-free charging (after that, the variable APR is 16.24 percent to 26.24 percent).
In both of these scenarios, it will be essential that you stick to your budget. You constructed it carefully, so you should have enough money to make the payments and not carry over debt before the regular rate goes into effect. And remember that you still have to make at least minimum payments during the 0 percent APR period. Delinquent payments can nullify the 0 percent APR arrangement prematurely.
The bottom line
Think of your credit cards as powerful tools that you can use to your financial advantage. The moment you begin to feel out of control with your spending and charging, put the plastic down and reevaluate your budget. Identify the problem, then fix it. This is the year you really will reach your goals.
Check back each week for new Financial Fitness insights and tips to help set you up for success in 2023!
Information about the BankAmericard® credit card was last updated on August 10, 2023.