Using Credit Cards in a Shaky Economy

It’s almost impossible to turn on the news lately without hearing about the nation’s credit crunch and predictions of difficult times ahead for U.S. consumers. Fears of recession, depression, and tightening credit abound, but there are ways to use your credit cards to help buoy your personal financial situation in a shaky economy.

Some of the ways you can make your credit cards valuable financial assets during tough economic times are to transfer balances, find cards with low introductory rates, and take advantage of the many types of reward cards available. Here are more details on your options.

Credit Card Balance Transfers Can Help Stabilize Your Financial Situation

An effective way to put your credit cards to work to improve your personal finances is to transfer balances from your higher interest cards to new or existing cards with lower annual percentage rates (APRs). Even saving two or three percent on your APR can save hundreds of dollars in the long run and make it easier to meet your monthly budget, send more than the minimum payment to pay down your credit cards faster, and free up your cash flow for other expenses.

For example, if you have a credit card balance of $3,000 on a card with a 14 percent APR and you can transfer that balance to a card offering an 10 percent APR, you’ll shorten the time it takes to pay off the $3,000 by 38 months — saving you more than three years of monthly payments.

Multiply that by two or three balances on higher interest cards, and you’ll reap significant financial savings.

Low Introductory Rate Credit Cards Save You Money

If you’re searching for a new card, look for one that offers an introductory period with a zero or low interest introductory APR, as well as a reasonable APR for the long-term – especially important features if you tend to carry a balance on your cards from month to month. Taking advantage of these offers will free up your finances to pay down your credit card balances faster, or you use the money you save on other items and expenses.

Reward Cards – Even More Important in Difficult Economic Times

Many consumers have discovered the benefits of credit cards that offer attractive rewards, especially if they pay off their balances monthly. In fact, a recent J.D. Power and Associates survey about credit card consumer satisfaction revealed that 77 percent of credit cardholders who pay off their balances regularly choose credit cards based on the reward programs offered.

To choose a reward card that works best for you, consider these factors:

No Annual Fee – To make the reward card you choose as cost-effective as possible, choose one that does not charge an annual fee.

Annual Interest Rate – If you pay off your balance every month and don’t incur monthly finance charges on your account, finding a card with a low APR is less important than other factors. But in case you may end up carrying a balance – even for a short period of time – find a card that has a low APR that’s locked in for the long term.

Cash and Merchandise Rewards – Reward cards come in a many varieties nowadays. Cash reward cards are by far the most popular, allowing cardholders to redeem points earned toward merchandise, restaurants, gift cards, airline miles, hotel and motel discounts, and more. In the same J.D. Power and Associates survey, American Express and Discover card topped the list for these types of rewards.

Cash-Back Reward Cards – A popular type of reward card is a cash-back card which repays consumers a percentage of what they’ve spent during the year. Consumer Reports gave top ratings for cash-back cards to Blue Cash from American Express, Chase Freedom Visa, and Discover More in a July 2008 report.

Gas Cards - This past summer when gas prices were soaring, there was a surge in gas reward card offers. Given the fluctuation in the marketplace for oil and gas prices, finding a gas card with appealing rewards may prove a worthwhile hedge against rising prices.

Grocery Cards – Americans have also seen their grocery bills go higher and higher over the past several months, making grocery cards an attractive option when it comes to reward-based credit cards. Wal-Mart, Costco, and Kroger each offer grocery cards which are worth a closer look. And Citibank’s Diamond Preferred and Dividend Platinum cards both offer cash-back for grocery purchases for up to six months.