Personal Finance

New Year's Resolutions to Get Credit Cards Working for You

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With every new year comes New Year’s resolutions—many of which are related to credit cards and financial health. In fact, 32% of American workers made New Year’s resolution to pay back credit card debt and 40% made resolutions to save more money last year.

These are good goals to have, since they can greatly improve your financial health. But they’re also broad, which makes it easy to get pulled off track and lose sight of your goals. That’s why it’s a good idea to have smaller credit card resolutions in place, if only to keep yourself on the path to financial responsibility.

Here are four manageable credit card New Year’s resolutions to keep you on track to better financial health. These resolutions will help you to reduce debt, make more responsible credit decisions, and save more money.

Get on a solid budgeting plan

First thing’s first: reassess your spending and make a proper budget in 2018. This step should make you more mindful of where your money goes and give you more control over your finances. That could be useful if you’re sometimes the type who swipes your card without considering whether your budget can actually cover the purchase.

One easy way to budget is to use what’s called the “bucket” method. Give yourself a limited amount of money for each expense category at the beginning of each month. For example, $400 per month for groceries, $1000 for rent, and $100 for your transit pass. Put whatever money is left at the end of the month in your savings account or use it to pay down high interest debt.

Make it a point to actually review your monthly credit card statement. This will help you to track whether you're staying within your budget.

Don't carry a balance

Make it a point to not carry a balance on your credit card in 2018. This is easier said than done—especially if you have a large credit card balance. However, it’s more important to pay in full now than ever. The Federal Reserve raised prime interest rates at the end of 2017 by 0.25%, directly raising credit card interest rates with it. If your APR was 14.75% in November, it’s now 15%. Rates are expected to rise throughout 2018.

Carrying a $2,000 balance at a 15% APR means you’re paying $235.61 in total interest charges if you make $200 payment every month. Paying your credit card in full each month ensures you’ll pay zero in interest and will directly help you to save more money in 2018.

Note that the belief that carrying a small balance on your credit card each month will raise your credit score is false. This practice can actually lower your credit score as carrying a balance will leads to higher credit utilization—one of the most important credit factors. If you can, end each month with a statement that has a $0 balance.

If debt is unavoidable, transfer it to a 0% card

If you must carry a card balance into the new year, consider transferring it to a 0% card. Such a card allows you to move existing debts to a new account with a 0% promotional interest rate. The promotional period generally lasts between 12 to 24 months from the time you open the account, which allows you a good amount of time to pay down your balance without paying interest.

Balance transfers aren’t completely without cost. Most balance transfer cards charge a 3% to 5% transfer fee. Also, after the promotional period for the low interest rate expires, you’re charged the full rate on any balance, so be sure to pay down your balance as soon as possible.

Opening a new credit card will have a temporary affect on your credit score. This is because the bank performs a credit inquiry when you apply for a new account. Luckily, this is a minor effect, since credit inquiries make up just 10% of your credit score. Additionally, the new credit line, along with you making on-time payments, should improve your credit score over time.

If you’re unable to open a new account, consider asking your bank for a lower APR. Many banks will work with you to lower your interest payments if you consistently make on-time payments and show that you’re actively working to reduce your debt. You can do this by calling the number on the back of your card or by going to a local branch of the issuing bank.

Use credit card rewards to book a vacation

If you have a stash of credit card points, consider using them to book your 2018 vacation. Many travel credit cards have the ability to transfer points to airline frequent flyer programs and hotel loyalty programs, so be sure to research the best way to maximize your credit card points.

If you don't have enough points for your trip, leverage credit card bonuses. They are a good way to get a big point boost in a relatively short period of time. In fact, some travel cards have welcome bonuses of between $600 and $700, payable in travel vouchers after you spend a certain amount of money on the card. Just be aware that some travel cards come with a high annual fee, so compare the card’s benefits to its fee before you apply.

Note that this resolution is only for those that are debt-free; credit card rewards are only profitable when you pay your credit card on-time and in full every month. Travel credit cards often have higher interest rates than other credit cards and charge higher fees for late payments.

This content originated on ValuePenguin.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.