You have to learn the rules of the game. And then you have to play better than anyone else. – Albert Einstein
Credit cards are a game. The banks set the playing field, they make sure the odds are stacked against you, and the rulebook is buried somewhere no one will ever read it (like the Fed’s credit card agreement database), but it’s still a game many of us choose to play. These tactics may be “evil”, or “unfair”, or whatever you want to call them, but if you take the time to learn the ropes, the game is winnable. Following are some strategy excerpts from the NerdWallet playbook.
Decide if you’re playing a running game or going long
If you are rolling debt over month-to-month, it’s going to be a long grind to the end zone. Each month, just try to move the ball forward by paying off more than your minimum payment, and eventually you’ll have your goal in sight (which should mean low or no debt). Only paying the minimum is the same as running in place, which is exactly how the banks like it, so do what you can to either pay more or get your minimum payment down. Think of your interest rate (or APR) as the defensive line, and you want those guys as small as possible. So look into low interest credit cards, cards with 0% introductory APR offers, or special rates on balance transfers to minimize the defense and keep the game moving in your favor.
On the other hand, if you are able to pay your balance off each month, you are in a better position to play long ball. Rather than fighting yard-for-yard towards debt reduction, you should be pushing to maximize your reward intake. The key here is to take account of where you do most of your spending and align your rewards accordingly. For example many cards offer bonuses of up to 5% on gas, groceries, or other categories, and some cards offer 2% back on all purchases. I prefer cash back credit cards, but travel or gas rewards might be best for you. Don’t be afraid to combine these types of cards to get the most out of them; think of it as having multiple receivers who can cover the whole field and squeeze the most yards out of any play.
Don’t get taken down by penalties
No matter how you play the game, card companies will try to get more money out of you in terms of fees. The most common types of fees are late fees, over limit fees, balance transfer fees, and fees on cash advances. Each time you get hit with one of these, think of it as a ten-yard penalty, immediately knocking you further from your goal. All that progress you made paying interest or accumulating rewards can go right out the window with a few penalty fees, so do everything you can to stay within your limits and pay your bills on time. Try things like signing up for auto-pay, or setting reminder alerts for yourself. Avoid cash advances altogether since they rarely make financial sense, and if you’re contemplating moving to another card, use a balance transfer calculator to make sure the fees don’t outweigh the benefits.
To make the game even more interesting, banks can decide to bring on bigger defenders when you get hit with a penalty as well. Even with the latest CARD Act regulations in effect, banks can still raise your interest rates to add insult to injury. The combined effect of penalty rates and penalty fees is a double whammy that you should do everything in your power to avoid.
There’s no crying in credit cards
At the end of the day, while the tactics of banks and credit card companies seem underhanded, they are typically within the law. And while their terms and conditions are unnecessarily difficult to understand, it is our responsibility to understand them and play by their rules. So then we have to decide, should we bow out of the game entirely and give up the benefits of credit cards? Or should we arm ourselves with the best information possible, storm the field, and take them for everything we can?