Tuesday, August 5, 2008

Winning your war on plastic

How many credit cards do you have in your wallet? And — perhaps a better question — are you taking advantage of them or are they taking advantage of you?

Unfortunately, for many people, it's the latter. Month after month, they throw a minimum payment toward their credit card debt, only to get the next bill and see that, due to high interest rates, the balance has gone up, not down. That's a big problem in this economy, as the Federal Reserve is likely to raise interest rates when it makes a move, rather than sending them back down.

I believe credit cards are a great — and often necessary — tool to keep in your financial arsenal. But you have to use them wisely.

So how do you secure the upper hand in the relationship between you and your plastic?

Consider your lifestyle
I'm pretty careful about what I put in my wallet. However, I do rely on my credit card for everyday purchases. And if I'm giving the credit card company that much business, I’d better be getting something back in return. I choose to take my reward in the form of airline miles, because I travel pretty frequently and I know I'll use them. But these days, a lot of people are going for gas or cash-back cards. The trick is to think about what reward you'll use, because you don't want to end up with a bunch of miles on your hands and nowhere to go.

"For most consumers, if you want to keep it simple and you don't travel a lot, cash is king in my opinion. But one card doesn't fit all, and it's a matter of finding which card fits your lifestyle and your budget," says Curtis Arnold, founder of CardRatings.com and author of the new book "How You Can Profit From Credit Cards" (FT Press). Even if you decide that a cash-back card is for you, your work isn't over. There are cards that will give you more points for shopping at grocery stores, filling your car with gas or even paying your gym membership. Figure out where you'll get the most bang for your buck.

Examine the fine print
And I do mean examine, with both a fine-tooth comb and a magnifying glass. There are loopholes in a lot of these deals, no question. That's not to say they aren't worth it, but you have to look for things like caps on the amount of the reward you can receive, how easy it is to get your earnings (do they give you a credit on your statement, for instance, or do you have to wait for a check in the mail?) or tiered programs that boast 5 percent cash back, but don't kick in until you spend $10,000. If you're a big spender, it may well be worth it, but otherwise you'll want to find a program that starts with the first dollar you charge.