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4 Steps to Optimize Your Credit Card Portfolio

4 Steps to Optimize Your Credit Card Portfolio

Credit cards are easy enough to get. But just because you can get one, doesn’t mean you should. Use the wrong credit card, and it could cost you thousands more than you intended. Use the right one, and it could earn you thousands more than you ever imagined.

That’s why, every year you should take a look at the cards in your wallet, and re-calibrate your “portfolio”. Get rid of the cards that aren’t performing and replace them with cards that better match your spending or borrowing habits. The impact of doing so could cut your rates by more than half, or earn you a free flight faster than you ever expected.

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To give you an idea of how much you can gain by optimizing your credit card portfolio annually, with the exact same spend, we know of one cash back card that will earn you $456 in cash back EVERY year. Using a sub optimal card, you would only receive $99 cash back. That’s a $357 difference per year.

Alternatively, you could be paying 20% interest on thousands of dollars in credit card debt. Why not get a balance transfer card and pay 0% for the next 12 months? Doing so can save you $1,420 in 1 year of interest payments alone!

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Here are 4 strategies to optimize your credit card portfolio.

1. Determine What Type of Credit Card User You Are

Generally, users fall into one of 3 categories. You either pay off your credit card every month, always maintain a balance, or occasionally maintain a balance. If you pay off the entire balance of your credit card at the end of every month religiously, you’re going to want a rewards card. If you always maintain a balance, or frequently only pay the minimum payment, you’ll want a low interest credit card option. If you’re somewhere in the middle, you may want both!

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2. Compare The Market

Now that you know what type of credit card user you are, scour the market for the best credit cards that match your needs. If you pay down your balance every month, just look at rewards credit cards. Interest rates will have no impact on you. Look for sizable welcome bonuses, annual fee waivers (so you can try before you buy), and rewards programs that suite your preferences (cash-back, rewards, miles, retailer). Find a card that maximizes your rewards given your spending habits.

If you maintain a balance, get a low interest credit card. There are two considerations here. If you already have a credit card balance, look for a balance transfer card with a 0% rate for the longest promotional period possible and the lowest balance transfer fee possible. Don’t get fooled by a low rate, with a high transfer fee in the small print.

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If you know you’re going to carry a balance in the future, look at one of the many low interest credit cards for new purchases. You’ll want to look for a low rate credit card that has no annual fee and a low fixed interest rate that won’t fluctuate over time. Don’t get fooled by promo rates. Get a credit card you can keep in your wallet over the course of the year for any purchases you know you’re not going to be able to pay down right away.

3. Add New Credit Cards

Now that you’ve done your research, apply for the cards that optimize your credit card usage. Don’t apply for 5 cards at once, you’ll blow your credit score. Depending on your current credit score, adding a credit card every few months will be just fine. There’s no limit to how many credit cards you can have. There’s only a limit to how many you can apply for in a very short period of time.

4. Purge Your Wallet

Now that you’ve added the credit cards you want, it’s time to get rid of the cards you no longer need. The first priority will be to get rid of any credit cards with an annual fee that aren’t giving you optimal value. Don’t worry about the impact of closing accounts on your credit score. Any minor bump will be temporary, especially if you replaced an existing card with a new one. Regardless, despite what your current credit card company will tell you, it makes no sense to pay $120 a year in annual fees, if you’re not using a credit card and it provides you with no value.

Conclusion

Don’t just do this once and forget about it. You should be adding and purging credit cards from your wallet constantly. There are new credit card offers and products on the market all the time. Credit card issuers tend to give their richest deals to new customers, don’t be afraid to take advantage. Loyalty definitely doesn’t pay.

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Marc Felgar

Marc Felgar is an aging, health & senior care expert focused on improving the lives of mature adults.

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Last Updated on July 10, 2020

The Definitive Guide to Get out of Debt Fast (and Forever)

The Definitive Guide to Get out of Debt Fast (and Forever)

Debt can feel crushing, like a weight that is always weighing you down. Looking at those numbers, it can feel as if you’ll never get out from under it. However, if you really want to learn how to get out of debt, it is possible with a great deal of focus and self-control.

Getting out of debt isn’t impossible. Like any big goal, all that it takes is an action plan to identify where you are and creating a plan to zero out your debt.

Identifying All of Your Debts

The first part of paying off your debt is getting a complete picture of what you owe. When you have everything written out in front of you, it makes it much easier to create an action plan. Depending on how much you owe, it might also help you realize it’s not as bad you might have originally thought.

Here’s how you can get started identifying your debts:

1. Own Your Debt

Before you start identifying all of your debts, take a moment to process that you have debt but want to get out of it.

Forgive yourself for any past mistakes, missed payments, or overspending. It might be painful to accept how much debt you have at first, but you must own it.

2. Make a Debt Tracker

It’s astonishing how few people ever created a tracker to understand their total debts. Most likely, it comes from not wanting to accept the guilt of having debt, but, if avoided, it can make it nearly impossible to get out of debt.

Open up a new Google or Microsoft Excel sheet and list out all of your debts. Start with the name of the creditor, interest rates, total balance, loan term length (if any), and the minimum amount due each payment. This will include student loans, credit cards, and any other type of debt owed.

3. Get Your Debt Number

Once you’ve made your debt tracker and taken the other steps, identify your total payoff number. This is crucial, as you will have a starting point and a clear goal that you are trying to achieve.

Prioritizing Your Debts

All debt is not created equal. It’s imperative to understand that there are different types of debt.

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1. Understand Bad and Good Debts

Bad debts are usually paying for things you want instead of always need. While there might be some emergencies that max out your credit cards, often times it’s excessive spending[1].

There are three main types of bad debt:

  • Credit Card Debt: The average American household owes over $16,000 in credit card debt!
  • Auto Loan Debt: According to CNBC , the average auto loan in the US is $30,032!
  • Consumer Loan Debt: Consumer loan debt isn’t as common as credit card and auto loan debt, but it’s still considered bad as interest rates are usually between 10-28%.

Good debt is identified as investments in your future. Here are three common types of good debt:

  • Student Loan Debt
  • Mortgage Loan
  • Business Loans

2. Decide Which Debt to Pay off First

Once you know each type of debt and their interest rates, you can begin to pay off debt quickly.

Focus on paying off bad debt first, regardless of if it is a credit card or auto loan. Start by paying off the loan with the highest interest rate first.

If you have several credit cards with different interest rates, you want to focus on the one with a higher APR. You will actually save more money by eliminating the card with the highest interest rate.

3. Don’t Pay the Minimum Amount

Paying the minimum amount digs you into a hole as interest rates will offset your payment. Even a small amount more than the minimum can help you pay off debt much faster.

Removing Obstacles to Pay off Debt Quickly

Creating a debt tracker and prioritizing a plan is simple, but avoiding temptation can be difficult.

1. Set a Reminder to Track Your Debt

“If you can’t measure it you can’t manage it.” -Peter Drucker

It’s so important to track your debt to ensure that you get it paid off quickly. Similar to working out and measuring your results, you need to track your debt constantly. Start with a weekly reminder, where you sign on and log your updated number. Did you increase, decrease, or stay the same?

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Regularly tracking your student loan balance can be incredibly motivating, as well. You will get a huge confidence boost each time you see your total debt amount decreases.

Set weekly and monthly goals so you can have short term wins and keep the momentum going.

2. Hide Your Credit Cards

If your biggest debt is credit cards, you need to eliminate temptation and remove them from your wallet.

Some people have gone to extreme measures by freezing their credit cards. Why? This would create an ice block around your card, which would require you to chip away at it slowly. This will give you time to think if it’s the best idea to buy that thing you’re about to buy.

3. Automate Everything

Willpower can be a huge downfall to paying off your debt. By automating your bills each month, you will ensure that willpower isn’t involved.

4. Plan Ahead

Getting out of debt will require some sacrifices, but with enough planning, you can make it work.

For example, if you know that you have a friend’s birthday or family dinner coming up, plan ahead for the costs. Whether you need to cut back on spending the week before, pick up a side job, or meet them after dinner, do what is needed.

5. Live Cheaply

The only way to get out of debt is to make some sacrifices on your spending habits. Find ways to save money each month so you can apply that amount to your outstanding debts. Here are some ways to save money each month:

  • Live with roommates
  • Cook dinners and prepare lunches for work instead of eating out
  • Cut cable and choose Netflix or Amazon Prime
  • Take public transit or bike to work

Finding the Lowest Interest Rates

The higher your interest rates, the harder (and longer) it will take you to pay off any debt.

If possible, you want to find ways to lower your interest rates to help get out of debt quickly. Here’s how you can get started:

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1. Maintain a High Credit Score

Your credit score will have a large impact on your ability to refinance your loans and receive a lower interest rate. If you have a low credit score, it’s unlikely you will be able to refinance your loans. Use these credit tips to increase and maintain an excellent score:

  • Never miss a payment
  • Don’t exceed 30% of your credit limit
  • Don’t sign up for more than one card at once
  • Limit hard inquires, like auto-loans and new credit cards
  • Monitor frequently with free credit-tracking software

2. Find Balance Transfer Offers

Start by opening a free account on credit.com. Credit.com offers you the chance to open a free account and see what type of balance transfer offers you can receive. Some of your existing credit cards might already have 0% or lower APR balance transfer offers available.

Contact each of your credit card providers to ask about lowering your rate for a one-time balance transfer offer[2].

If you do take advantage of this option, make sure that you use a balance transfer and not a cash advance. Cash advances have a ton of high interest fees (15-25%, depending on your credit card) and will only compound your debt problem.

How to Get Rid of Debt Forever

Setting up a plan, removing temptations, and getting the lowest interest rates is the first step to get out of debt.

1. Keep Monitoring and Adjusting

Once you have a plan, don’t get comfortable. Track your debt payoff plan and make the necessary adjustments when needed.

Monitor your credit scores with a free site like CreditKarma. The higher your credit score climbs, the more likely you will be to secure a new, lower-interest loan.

2. Earn More Money

There are only so many ways to save money. Instead of clipping another coupon or making sacrifices for your morning coffee, find ways to earn more money!

Think about it…it is much easier to find ways to earn an extra $1,000 per month than find $1,000 to cut from your budget.

Here are some examples of ways to earn more money:

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Talk to Your Boss

Have a conversation with your boss about current salary and/or commission rates. If you’re not satisfied or want a change, don’t be afraid to look around at other positions. Some of them might even have a student loan debt reimbursement plan!

Start a Side Hustle

This could be coaching students on the weekends, driving for Uber, or taking paid online surveys. There are tons of ways to make money outside your 9-5. Now that you have a clear plan to pay off your debts, you’ll be more motivated than ever to figure out creative new ways to earn money.

Build an Online Business

There are so many websites and blogs that earn money from ads, affiliates, and other online products. Find your niche and get started.

3. Celebrate Your Wins

As you progress in your debt payoff journey, don’t forget to celebrate your wins. You need to always reward yourself for the hard work and discipline that is required to get out of debt.

While you shouldn’t celebrate so big that it increases debt, make sure to factor in little rewards to keep you motivated.

4. Set New Financial Goals

Eventually, with a plan and these steps, you can rid yourself of your debt. Once you do, make sure to celebrate your monumental achievement, but don’t stop there.

Now, you can focus on acquiring wealth and increasing your net worth. Set new financial goals so you have a new target to aim toward. Here’s how to set financial goals and actually meet them.

These could be anything now that you are debt free! Think about where you want to travel, buying your first home, or saving for your future retirement. Just like before, make sure that your goals are specific, measurable, and achievable.

Conclusion

Congrats, you can now set a plan in motion to finally pay off your debt quickly (and hopefully forever)!

Remember, if you want to get out of debt quickly, it’s not always easy. Just like any big goal, there will be sacrifices, challenges, and problems to overcome.

More Tips on Getting out of Debt

Featured photo credit: Pepi Stojanovski via unsplash.com

Reference

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