Tips for Rewards Cards, Promo Rates, and Reducing Credit Card Debt

We all know by now – after feeling the negative impact of the recession, the credit crunch, and the high rates of unemployment – that it pays to be smart about how we use credit and manage our levels of debt. Right before the worst of the global recession and credit crisis hit, for example, the average American consumer was carrying such a large burden of debt that he or she was actually earning less each month that was being spent.



You cannot continue to balance your finances if you are spending more than a dollar for every dollar you bring home from work, but that is exactly what millions of Americans were doing. That’s why the average USA saving rate – which calculates how much money the typical household saves versus how much they spend – was in negative territory when the credit crisis hit. That was the first time it had been in negative territory since the Great Depression, and many economists now blame that lack of saving and obsession with living off of borrowed money for helping to usher in the hard economic times we are all now trying to weather.



But understanding a little bit about the history of economics or the national recession might not make it any easier to manage your credit cards and monthly budget, so here are a few tips that may help.



For starters, if you are accustomed to carrying a balance on your credit card then this year would be a good time to update your strategies for doing that. It used to be that you could carry a higher balance – or a bigger portion or percentage of your credit card balance – without much trouble. But banks and credit reporting agencies have tightened their policies, and now if you continue to carry balances that exceed 25 or 30 percent of your total credit line or limit, your card company might raise your interest rates and fees. A better strategy is to either carry a lower balance of borrowed money or divide it up between two cards. If you have a credit limit of $5,000 on two different cards for example, and an outstanding balance of $2,000 on one of them then you might be better off keeping only $1,000 on each card.



You can, of course, also take advantage of an attractive introductory offer to do a balance transfer at a low or zero percent interest rate. But those offers have also seen some significant changes in recent months. The offers may still have great rates attached to them, but most of the offers are for shorter periods of time. Instead of enjoying the new low introductory rate for the first year you have the credit card, for example, your teaser rate will likely expire after only six months.



In addition to shorter introductory periods banks are also charging customers a fee to do the initial balance transfer, so you might get hit with a fee worth five percent of the amount you are transferring. That could make a balance transfer less profitable for you so you should do the math and crunch the numbers to help you leverage credit card debt in a way that works out best for you. Plus, don’t forget that even if you have a fantastic zero percent rate on your card you can lose it overnight if you just make one late payment.



Even if you mail your payment and it gets delayed en route to your credit card company, or you make an online payment or payment by telephone but you miss the deadline for the transaction to get credited to your account on time, you will suffer the consequences. You may have a zero percent interest rate and if your payment gets credited to your account just one hour too late, that rate could quickly jump to 25 percent or higher. So the first rule of credit card management is to always make your payments in a timely fashion. Forget that rule and it could wipe out all of your other savings strategies instantly.

Other ways to save money in a big way on your credit cards involve improving your credit score or persuading your credit card company to lower your APR. Raise your score by reducing the ratio of your overall debt to your monthly income and then you’ll be a stronger bargaining position because you will become a more preferred and low-risk customer. Then you can phone your card company and ask for a reduction in your interest rate, telling them that if they cannot offer that you then you may need to take your business to their competitor. If your track record of payments is good and your credit score is high enough they may agree in order to keep you on as a customer.



Of course if your credit score is in trouble and you are having lots of problems managing your credit card debt and monthly expenses, you may want to seek help from a non-profit credit counseling service. These professional organizations can show you ways to reduce your debt and get spending back under control, and if necessary they can intervene on your behalf and negotiate with your creditors to get you the debt relief you need.