Money Wise Blog

So your charge card account company just called offering you balance protection insurance against job loss, disability, life, or critical illness. The cost will be just pennies, calculated monthly based on your outstanding balance.

Do you take it?

The question is: have you performed an insurance needs analysis, or will you just make the decision to take the insurance based on impulse and instinct?

There are typically four different types of credit card account insurance:

Involuntary Job Loss: This pays your monthly minimum payment for a specified period of time after you lose your job through downsizing or layoffs.

Disability: Like above, your monthly minimum payment is covered for a specified time period upon becoming disabled and unable to work.

Critical Illness: Similar to above.

Life or AD&D (Accidental Death & Dismemberment): If you die, your entire credit card balance will be paid.

The cost may initially seem small at between $0.75 and $1.50 per $100 of outstanding charge card account balance each month, but in the spirit of being frugal, is that cash wisely spent?

Consider the fact that with the exception of credit life protection, this insurance doesn’t actually pay off your debt. It simply makes the minimum payments on your outstanding balance for the term of the contract. In fact, depending on the credit card account and interest charges, you may sometimes find that the balance at the end of the contract is actually higher than when the claim occurred due to compounding interest.

Are those minimum payments something that would cripple you financially in the event of an illness or job loss? The answer will be different for everybody – this is just food for thought.

Similar to individual Critical Illness, Disability, or Life Insurance policies, there are a few things that bear consideration in order to make a sound decision:

What are the terms of the policy? (For example, what are the specific definitions under which the insurance company will pay)?
What coverage do you need? If you lose that income or become ill, will minimum payments on your credit cards be of benefit to you, or do you have other funds that will suit the purpose?
What coverage to you already have? There is no point in duplicating your insurance coverage if you already have a CI policy in place.
In the case of job loss insurance, what are the exact terms? You may be surprised at the restrictions of this initially appealing option.
Is it cost effective? As a case study, let’s examine the life insurance as an example. On a $10,000 charge card balance, at $0.80 per $100 of outstanding balance, your monthly charge would be approximately $80/month. For $80/month, a 35year old non-smoking female in good health can purchase upwards of $500,000 of Term Life Insurance.
Can you cancel the policy, and under what terms? If you do decide to take it, make sure you keep all your documentation together so cancelling it when the time comes is easy.
Are you insurable? Many balance protection policies don’t require any evidence of insurability to qualify. If you have medical issues that make you a higher risk such that individual policies would either be cost-prohibitive or unavailable to you, then maybe this is just the protection you need.

On the flip side, one type of credit card insurance that you may not realize you might automatically have is travel insurance. Many charge cards feature automatic flight and travel coverage if you pay for a trip using that card. In fact, before you go out and purchase travel insurance, it bears calling your credit card account company to find out the specific terms of their coverage. You may find that you can save a few extra bucks by not having to go out and get extra travel coverage!

As with all insurance policies, take a good hard look at what you need, what you can afford, and whether the “easy option” being offered to you over the phone is going to be easy in the long run.

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A commenter on a recent article of mine on charge card account usage, suggested a follow-up post with an eye to uncovering the mysteries of credit card account rewards programs.

And in my research, I discovered it’s a murky world of points, rebates, fees, and annual percentage rates out there! A lot of it comes down to personal choice, but here is some information to aid your plight for a suitable credit card rewards program: 

Three types of rewards

There are typically three types of rewards programs: point-based, cash back, and frequent flyer miles. Some programs offer combinations of these rewards, with varying value for point redeemed.

Points-based programs involve accumulating points (based on the amount you spend), and then redeeming your points for merchandise from their catalogue. Points leave a little to be desired, since depending on what you redeem your points for you might not get a lot of value.

For example, Smart Money has an article on this topic , where they show you the Good, Bad, and Ugly of credit card rewards programs. Case in point for the ugly:

You could trade 39,200 Bank of America WorldPoints for a 30GB iPod, which retails for $249. Or you could use just 35,000 points to get a $350 check — enough to buy the iPod at your local electronics store. You’d come out roughly $100 ahead, and saved 4,200 points to use for another reward.

Gift certificates tend to be the best value for your points when flipping through the catalogue, and it is generally recommended that you stay away from the merchandise, since it is over-priced and lacking in quality. The gift certificate option also carries an added value advantage, since credit companies strike deals with the retailers to give them a deal on the gift certificates, whereas a dollar is a dollar when it comes to cheques or merchandise.

Cash back is most common, and offers quick rewards for your buck. However they can also have limitations; Some will only start to honour the money back policy once you have spent a minimum amount of cash, and yet others will cap the total amount of money they’ll reward.

Frequent Flyer Miles for airline tickets will sometimes give you the best bang for their buck, but can be a pain to redeem. Many issuers have blackout times, while others only designate a certain number of seats per flight as airline rewardable seats. If you don’t book your ticket early enough you can be out of luck, especially if you want a flight that’s commonly flown and redeemed for.

Saving for airline ticket rewards can also be tedious and take some time to accumulate for, and in this changing airline world, increasing fees and limitations could pose problems in the future. I have already noticed that one of the rewards programs I use have imposed a stipulation that if you do not use your points within seven years of the point being rewarded to your account, you lose it. So if you are saving up for a big reward (or on the flip side have accumulated tons of points over the years and haven’t used them), you may lose your chance.

Also, expect to pay out of pocket for the taxes, fuel surcharges, and other miscellaneous expenses (like a special booking charge if you redeem on the phone with an agent as opposed to online). But hey – a buck is a buck. To fly across the country (or around the world) for the cost of the taxes is rarely something to complain about.

Tips for the reward-hungry charge card user

Pay off that balance!

As stressed in my previous article and related comments, using a rewards program is for responsible charge card users. If you rack up a balance with an eye to getting rewards, and then spend the next 6 months or more trying to pay off the balance (and paying interest all the while), then the value of your rewards decreases significantly. Pay off those darn cards every month and treat your charge card like a debit card or chequebook – if you don’t have the money in your account, don’t whip out the plastic.

Don’t get sidetracked by the smaller rewards

Initially it can take time to build up a big enough balance to start redeeming for the rewards you really want. Don’t lose patience and redeem your 800 points for an item of insignificant value when what you really got the card for was airline tickets, or special gift certificates. Most rewards programs have tiered systems that offer sweeter rewards (with better value) for those with more points. Your patience in saving up will be rewarded.

Get the card for the rewards you want

If what you want is an airline ticket to Hawaii, then search for the best card to get you there. I found a program (in Canada) where flights to Hawaii required fewer points than even some continental flights, and I chose that card with an eye to getting that ticket. It took time, but my boyfriend and I are now living (temporarily) in Hawaii, and got return tickets for a total of $76 in taxes for both of us (whereas paying in cash would have been over $1,600 for both of us).

Look for bonus points

Lots of programs will offer bonus points depending on where you spend your cash or what you buy. Check online for bonus offers regularly, and spend wisely. You can often get triple the miles with a little research and effort.

Look at points conversion programs

Some programs are in cahoots with each other, and you can transfer or convert miles from one program to another. Be wary of those that charge a fee to do so, and take a close look at the conversion ratio. Sometimes they’re way out of whack such that is makes no sense to convert.

Specific programs vary from country to country (and sometimes even within regions), so I won’t go into many specifics with regards to individual program choices. It’s up to you to decide which rewards will ultimately benefit you the most. Just remember to use it wisely or else the interest fees will end up costing you more than you’re getting in rewards, and it’s a safe bet that that is exactly what the credit card companies are counting on.

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The most credit savvy among us have been able to use charge card accounts to their benefit in order to wisely and optimally save cash even while charging on their cards. If you are careful about how you use your credit card accounts, you may actually come out ahead by using them, rather than if you just stuck to cash. I’ve written about the perks of using cards before and why I prefer charge cards over cash, but this time, I’d like to share some actual strategies we can use to get the most out of our charge card accounts.

10 Tricks To Save Money Through Prudent Credit Card Account Use

1. Consolidate your credit card account debt with care.

Many consumers use a common strategy to trim what they owe on their cards: they use balance transfer charge card accounts, which offer 0% or low interest rate on the balance that is moved over, but for a limited introductory period. Make sure you perform a cost benefit analysis before executing this plan since most cards these days have a balance transfer fee (typically around 3% of your debt) that you’ll need to pay when you do the switch. You should also assess if you’ll be able to pay off your debt entirely before the promotional 0% rate period is up, in order to avoid any increases in the card rate. If you can’t make this work, it may still be worth doing a balance transfer if the new card carries a much lower annual percentage rate than your old one.

2. Use rewards cards only if you can pay your balance in full.

I’m a huge fan of charge card rewards. But to offset the rewards that they pay out, rewards cards tend to have higher annual percentage rates than regular credit cards. For instance, it would only make sense to earn American Express rewards if you intend to pay your balance in full each month, no fail.  If you can’t commit to such a schedule, then it’s better to apply for lower interest cards. 

3. Be careful about participating in credit card account arbitrage schemes.

Because of today’s more restrictive credit environment, it’s now tougher for shrewd cardmembers to execute any cash making schemes using charge cards. In the past, it was fairly easy to make cash with cards by taking borrowed funds and funneling them into a high interest savings account that sported an attractive yield. With savings accounts no longer yielding such great returns and balance transfer cards with awesome terms now dwindling in number, this strategy is no longer as lucrative as it once was. There are still consumers who play this game though, but it’s a game that requires top notch organizational skills since any misstep (say a forgotten or late payment) can cost you much more than you’d earn in this plan.

4. Pay more than the minimum and pay on time!

By simply practicing good payment habits, you’ll avoid exorbitant finance charges and penalties levied upon your account. It’s best to pay off any monthly balance in full, but if you can’t swing it, then paying more than the minimum will save you quite a bit in interest over the long term. There are also certain credit card accounts that will reward you for this type of good behavior (check out my Citi Forward charge card account review for more details).

5. Do your research before applying for a card.

Compare charge card offers before signing up for anything. Have you read the terms carefully? Based on your shopping habits, you’ll find that there are certain credit card accounts that will suit your spending patterns better than others.

6. Don’t own too many cards.

I’d avoid collecting rewards cards simply because owning too many may prevent you from optimizing your rewards on any one card. Also, having too many cards may just encourage you to charge more than you should and to overuse your credit.

7. Avoid relying on charge cards to cover an emergency.

Some people I know don’t have emergency funds and end up relying on their collection of credit card accounts to bail them out whenever the need arises. However, with no savings, you’re likely going to keep a balance on your credit card as soon as you use it for any unexpected expenses — and keeping a balance means paying extra in interest. So keep in mind that while depending on your cards as backup is quite tempting to do, it will certainly be expensive in the long run if you charge up a storm. 

8. Carry a spare charge card account.

Here’s a great compromise: if you are interested in taking advantage of rewards, you can still own a rewards card but use it only for those items that you’ll be able to pay off completely each month. You may want to consider applying for a second card which should be of the low interest kind; this is the card that you can afford to own with a balance given its lower rates.

9. Talk to your card issuer about lowering your rate.

If you’ve got a good history as a cardmember, you may have some leverage here. When you’ve been a customer for a while, give your card company a call to discuss the possibility of cutting you a break on the rates. They’re more amenable to this type of request than you think since card companies would love to hold on to their good clients.

10. Don’t use your card for cash advances.

Avoid using any free checks that come your way that draw from your charge card account account. And try not to use your card for any form of cash advance — it’s not worth what you’ll pay for the convenience.

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I first considered a balance transfer last summer. A newly-minted MBA, I was also up to my eyeballs in debt (let’s face it: I still am), but was hoping to responsibly pay it down, so I did the conscientious thing: I read up on which charge card accounts offered what benefits and chose the one that seemed to best suit my goals. Then, I transferred my existing charge card balance, which was accruing interest at nearly 13% per year, to one which would accrue no interest for 12 months (for a fee, of course, but we’ll get to that). So why do a balance transfer, and how can you find the best deal out there? Why, so glad you asked!

People generally transfer their charge card account balances from one card to another when they are unhappy with their current card company’s policies or practices, or if your charge card company notifies you that your APR or terms are changing. Prior to the signing of the Credit Card Accountability, Responsibility and Disclosure Act in May 2009, charge card account companies could change any terms of service, at any time. Now, however, a card issuer must give you 45 days’ advance notice prior to increasing your rate, changing pertinent fees, or making other significant changes. Should you receive a notice like this, you have the option to cancel the card, or you may want to keep it (for credit score or emergency purposes) and transfer the majority of your balance to a new, lower-rate card.

And how do you go about finding the best card for you? The Consumer Action’s 2009 Charge Card Survey website is an excellent place to start, with lists of most popular charge card accounts with their terms at-a-glance, 0% balance transfer credit cards, and 0% introductory offer charge card accounts. As I said earlier, you should be aware of your goals when choosing a new card. A 0% balance transfer charge card may not be what you’re looking for if you don’t plan to pay off the balance within that 0% interest period. Instead, a card with a lower APR on an ongoing basis may cost you the least.

You might also want to check out JemCreditCards.com, which breaks down charge cards by categories like low interest, travel rewards, etc.

Before you rush off thinking, “Balance transfers are amazing! Sign me up for a new card immediately,” it’s probably a good idea to read this article regarding things to be attuned to prior to transferring a charge card balance. As this article so aptly points out, the devil is in the details. Before you commit to a balance transfer, make sure you understand the terms of the offer (the 0% rate may only apply if you also make a certain number of purchases, for example, all of which will accrue interest at the standard annual percentage rate) and what the transfer fee is. Also be aware that it can be difficult to qualify for an attractive offer if you don’t already have great credit. The article correctly notes that those with the largest balances generally stand to gain the most by transferring those balances to lower APR cards.

So now that you are equipped with the basic knowledge of how to do a balance transfer, consider whether one might benefit you. A little homework and the right card could save you quite a bit in interest payments!

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Many consumers receive convenience checks in the mail and regard them as a monetary gift, another source of funds from a special-purpose checking account. Don’t be fooled. Convenience checks aren’t like regular checks attached to a checking account. They are a type of loan, a cash advance against the credit availability on your credit card. Below are 6 reasons why these checks can come back to haunt you.

1. High Interest Rates

Convenience checks usually carry a higher annual percentage rate than the rate charged for credit card account purchases, often in excess of 20%. If there is a low introductory interest rate promotion, read the fine print to understand the promotion time period and what the default rate will be once the period has expired.

2. Immediate Interest Accrual

Interest charges begin immediately after a convenience check is cashed, unlike with credit card accounts where you have a “float” of several weeks before interest starts accruing. In other words, when you buy an item and pay with a credit card account, you don’t pay interest on the amount owed until after the payment due date (if there is a balance). If you buy an item with a convenience check, the annual percentage rate clock starts ticking when the check clears.

3. Fees

Convenience checks have a transaction fee attached, which can be up to 5%. For example, if you use a check to pay a $1000 bill, you could be charged a $50 fee. Using the check to do a “low interest” balance transfer from a higher interest card could also trigger a transfer fee.

4. Lower Credit Availability

As stated earlier, a convenience check is taking out a loan using the credit availability on your card. If you aren’t sure about the amount of available credit on your card, call the charge card company to verify the amount before using the check. These days, credit limits can be changed (i.e., frequently lowered), so if your check puts you over your limit, it could bounce or you could be charged over-the-limit fees. In addition, your credit score is closely tied to your credit availability, so if your convenience check uses up most of your available credit, your score will be negatively affected.

5. Less Protection

According to the Fair Credit Billing Act, consumers have certain protections against defective goods when making purchases with a credit card account. These protections don’t apply when you use a convenience check.

6. Temptation for Thieves

If you receive convenience checks in the mail and you aren’t tempted to use them, realize that other people might be tempted. Leaving blank checks around will invite theft, so shred the checks to avoid being on the hook for someone else’s spending spree. Studies have shown that most cases of identity theft are caused by a friend or family member.

In short, don’t use a convenience check unless you understand the terms and know all of the potential consequences. Otherwise, these checks can be truly inconvenient.

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Some consumers like to have their charge card account available for emergencies — either at home or while traveling abroad. Be careful: that card might not be available to you, just when you need it the most. This article explores the various reasons why your charge card could be canceled on you, along with some tips to help avoid having your own credit card account canceled — possibly without notice.

I speak from experience: while traveling in Australia, I found out — the hard way, in the throes of an emergency — that my charge card account had been canceled without notice, months prior.

I’m still here to tell the story though, so my emergency was not life-threatening. But I can’t possibly express the various shades of red I saw when I found out what had happened, and spent countless hours and days on overseas phone calls trying — unsuccessfully — to reinstate the card and rectify the situation.

True Horror Stories

A woman is vacationing in Europe when she discovers that her reward miles credit card is on the fritz. She is stranded and spends hundreds of dollars in cell phone calls to the credit card account company and the banks, trying to get out of this bind. There is no retribution granted from the credit card account company who had canceled her card outright. To make matters worse, she loses out on the free companion ticket she had just earned with her rewards.

How about the person who finds that the gas pump won’t take their card? Nothing is amiss: they are in their home town, use their card regularly and responsibly, and maintain an excellent credit score too. But their charge card account is also canceled, without notice. The reason cited? “Something” on their credit report was amiss. However with a spotless credit record, the real suspected reason is that their account wasn’t profitable enough for the credit card company to keep them on board.

What Gives? Reasons Charge Card Companies Will Cancel Cards

With the ability to change the terms and conditions at any time, credit card companies can cut loose card holders who aren’t making them money, especially the ones who pose additional risk or are a financial drain to the company. And when times get tough financially, credit card companies tighten their belts along with everybody else. Here are some specific reasons why the charge card company could cancel your charge card.

Non-Use

This is the most prevalent of reasons why your card will be canceled, and also the most avoidable. Charge something to the card every few months (even something very small), pay it off right away, and you can largely avoid this pitfall.

Don’t settle for a phone call to the charge card company. I had a special note put in my file that I was abroad and would only use the card rarely, in an emergency. The customer service rep I spoke to said that would not be a problem. Two months later, the card was canceled. My suspicion was that my card got canceled by an automated system and not a human being, so the preemptive phone calls and special notes in the file were worthless.

Your Credit Score Dropped

If your credit score has taken a hit, your credit card account account could be flagged.

Your Debt Increased

If you just took on a large amount of debt such that your credit utilization ratio is teetering, the charge card account company can make sure you don’t get in over your head — by canceling your card and eliminating the chance. (Ironically, this further increases your credit utilization ratio.)

Your Credit Increased

If you just applied for a line of credit or other credit vehicle that increases the overall credit available to you beyond a threshold that the credit company is comfortable with (regardless of whether you actually use that credit), they’ll take themselves out of your equation.

Market Conditions

Anything from house values dropping, to unemployment rising can affect your ability to hang on to that credit card.

Anything Else

Charge card account companies like to keep their game faces on, and won’t always reveal the true reason why they are canceling your charge card. That’s probably how our friend above had their card canceled due to “something” on the credit report, despite their spotless credit record. Ultimately, it boils down to their bottom line. Hey — that’s business. Let’s face it: owning a credit card account is a privilege, not a right.

Your Rights

Credit card account companies are required to give you 45 days notice for making significant material changes to the terms — such as a change in interest rates.

However, canceling cards isn’t actually considered a significant material change, and cancellation without notice is still allowed.

How it affects your Credit Score

More than an inconvenience, the cancellation of your credit card can negatively impact your credit score in a few ways.

Increase in Credit Utilization Ratio

If your credit card is canceled and you are carrying debt elsewhere, then that debt becomes a larger percentage of the overall credit available to you, thus increasing your credit utilization ratio. This decreases your credit score.

Decrease in Credit Longevity

Longevity of your credit vehicles is important; 15% of your credit score is attributed to longevity. If you have a credit card account that is 10 years old and others that are only a few years old, the cancelation of your 10 year old card will have a more detrimental effect on your credit score than the cancelation of one of the newer ones.

How to Prevent Cancelation

Once your charge card is canceled, talking your way into having it re-activated requires a minor miracle. So knowing what we’re up against, here are a few preventative measures you can take to increase the chances that you aren’t stranded at the gas pump (or in a distant land), idle plastic in hand.

Use it or Lose it

Avoid cancelation due to inactivity by using the card every couple of months. The size of the purchase is irrelevant, and you can pay it off immediately too.

Pay Attention to Ratios

Maintaining a credit utilization ratio below 25% will keep your credit score high.

Focus on Longevity

If you have multiple credit card accounts, pay special attention to the ones you have had for a long time. Losing them will be the most detrimental to your credit score.

Please note that you can do everything right and still end up a victim of charge card account cancelation. But hopefully these preventative measures will keep you out of the spotlight and off the top of their cancelation list.

What to do if your Charge Card Account is Canceled

If the deed has already been done and you’re looking for retribution, here are a few things you can do.

Check Your Credit Report

Order a copy of your credit report from one of the big three credit bureaus (Equifax, TransUnion, and Experian). You are entitled to one free report from each of the bureaus every year. You can also use a free service like Credit Karma. Make sure there aren’t any incorrect postings in there that have affected your credit score through no fault of your own.

Call Them

Nothing is lost (save for some time and possibly a chunk of your patience) by trying to call the credit card company. Who knows — they might take a look at your account and decide you’re worth keeping after all. You never know what you can get unless you ask. (A word of advice: be polite and friendly, and ask for the manager if you aren’t getting anywhere).

I’ve typically used one charge card account for all my expenses, keeping a second card in reserve for emergencies or when my regular card isn’t accepted. (When living abroad, charge card accounts aren’t infallible to dodgy local systems or tricky time zone glitches.)

But just because I’ve fallen victim to having a card canceled without notice (leaving me in the lurch no less), I’m not going to eschew the conveniences and benefits of charge cards that I’ve become accustomed to. To do so would be to shoot my own foot based on principle and anger, and I’m not into self-mutilation. Instead, I’ll make sure to use my backup card regularly and continue to pay the balance off each month. I’ll pay closer attention to the rules and fees, and be sure to stay on the same game page as the charge card account companies from now on.

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How much credit do you have? By this, I mean how much available credit could you go out and spend today if you really wanted to max all your charge card accounts to the hilt?

I’m actually surprised by the gradual increase in my credit limits, and by just how high some of them have gone. I try to spend no more than a few hundred on my credit cards at any time, and always make it a habit to wipe out my balances on a monthly basis. Still, my credit limits are maintained at around $6,000 per card. So what’s the concern? Well, with terms improving for many top credit card rewards programs, it’s not surprising how tempting it has become to start piling on the credit…or worse, the debt.

All this makes me reflect on the importance of being comfortable with the amount of credit I have. Now if you have charge cards yourself, take a look at them now and review the credit limits you have on them. If you have more than one card in your possession, you could very well find that you have credit lines worth five figures at your disposal. And if you are tempted to spend more than you can afford, then you could end up accumulating credit card debt over time and struggling with financial problems.

One simple way to avoid debt is to remove the temptation. You don’t need to cut up and cancel all your charge cards. But you can ask your credit card account issuers to lower your credit limits.

A lot of card companies bump up the credit limit on your card without even asking whether you want this to happen. To my chagrin, I’ve had this happen on several occasions. But if you’ve got any issues with this, you can always just call your credit card company to discuss the possibility of lowering your credit limit.

This is one thing that a lot of people fail to remember when using their credit cards — that they can easily run into debt problems by allowing themselves to accept higher credit limits. Without imposing some set boundaries on our spending, it becomes way too easy for spending to lead to bigger balances over time. Charge card companies are very much aware of how human psychology plays into our spending behavior. As it is, we don’t all have the same levels of discipline to keep our spending patterns in check, so it’s wise to implement debt and credit management strategies that enforce actual limits to the things we do.

If you’re facing higher credit limits, take the responsible approach and call up your charge card company and ask them to lower it to a limit that fits your budgeting and spending plans. If you know you’ll only need $1,000 as a credit cushion instead of $6,000, then ask for it. You’re the customer and if they won’t address your concerns, then you can threaten to go elsewhere. In fact, it’s something I’d probably just go ahead and do if I find that my card issuer shows that much disregard for their customers’ requests. And when all is said and done, I feel better knowing that I’m taking steps to keep my credit use under control.

More Ways to Keep Credit Use Under Control

So what are some more steps that you can take to get a handle on your debt and to avoid falling into a tough financial bind? Remember that it’s easier to manage issues like this before they spin out of your control:

1. If you’ve got debt, stop using your cards or applying for additional credit until you’re comfortable with your situation.
2. Stop spending and go on a budget. If need be, use budgeting software to give yourself some spending limits. Simply learn how to say NO to yourself.
3. Check your credit situation by reviewing your credit scores and reports on a regular basis. Check AnnualCreditReport.com for free credit reports every year, and credit score products like myFICO, which can help monitor your credit information for a fee.

Most of us have made some credit-related mistakes at one time or another.& You may already have run into problems with paying back what you owe. While there is a lot of credit advice out there that can help you if you are in this situation now, it’s probably best if you first gauge and assess how your finances currently stand before you do anything else.

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Here we are about a month after Christmas, and the first charge card bills from the holiday season are starting to arrive. Many consumers are experiencing a little sticker shock at the extent of their overspending. According to Consumer Reports, shopping with credit cards during the holidays often leads to overspending by an average of 16%. This is part of the reason that the same Consumer Reports survey revealed that 13.6 million Americans were still paying off holiday purchases from 2009 in November of 2010.

The cost of charge card debt is often a hidden expense, particularly for people who are juggling multiple charge card accounts. It is easy to overlook the total interest expenses when they are spread across three, five, or even seven credit cards.

But credit card account interest expenses add up quickly. Having an average monthly balance of $3,000 may not seem like much, but at a 15% annual percentage rate, it can cost you $450 a year.

Now is the time to assess the situation and make a plan to pay off the debt.

3 to 24 Months: Transfer Your Balance

If you know you can’t realistically do it in two or three months, seek out a charge card that offers a 0% balance transfer. With a balance transfer, you pay a small transaction fee, typically 3%, to move your high-interest debt to a card that charges no interest for anywhere from 12 to 24 months.

During this time of no-interest repayments, all payments you send to the credit card account will reduce your debt directly. This will help you pay off the holiday debt faster than sending a minimum payment each month and paying interest all year long.

Balance transfers are a good option for consumers with good credit, but these offers should be used with caution. Refrain from running up new debt when you transfer the balance to a new card — and focus on paying down what you already owe.

The best way to deal with credit card debt after the holidays is not to have any. Many consumers find themselves digging for a credit card during the holidays. However, the consumers that come out ahead are the ones that only spend what they know they can pay off by the end of the month! Remember improper use of credit cards can lead to severe financial hardships including bankruptcy so it is important to use credit cards responsibly even during the holidays!

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No amount of charge card account reform is going to help if you don’t spend the time to make your charge card accounts benefit you. As with many things, charge cards can be wonderful if you are disciplined, but they can also backfire and create a huge financial hole for you to dig out of. (If the latter is more likely for you, may I suggest measures such as freezing your charge card account?) Here are six ideas for how to benefit from your credit card account.

1. Eliminate Annual Fees

You likely looked into this before you applied to your current card of choice, but is your charge card still free to own? Many institutions started charging annual fees, and there’s a chance that yours does now as well. With companies likely adding the annual fee as a line item on one of your monthly bills, it may go unnoticed — so double check to make sure. (See also: Charge Card Account Fees: Hidden and Otherwise)

2. Pay Your Balances Off Each Month

I contemplated whether to put this one in, because it’s obvious. But it’s so important that everyone needs to hear this again and again. Don’t use a charge card account unless you can pay it off each month. Got it? Now go read it again, and follow the rules.

If you don’t believe that it’s possible to live without borrowing, just remember that consumers were fine before the invention of debt! If you can’t afford it, just don’t buy it. (See also: How Much Does Your Credit Card Debt Cost You)

3. Stick With Cash-Back Rewards

There are zillion different ways to redeem your charge card account rewards, but it’s probably best to stick with getting cash (or perhaps a statement credit) unless you were going to need to use it anyway. For example, getting a free airline ticket is good if you were going to buy the exact same ticket for the exact same price, but getting a $50 gift card and ending up buying $73.28 worth of useless junk is not worth it.

4. Know All the Benefits You Are Getting

It’s always a good idea to know every benefit that your card is providing. In addition to reward points, some cards get you into airport lounges, while others will double the warranty of a product. By knowing all the benefits, you won’t be paying extra for something that you can get for free. For example, one of my charge cards provides rental car insurance.

5. Write Down Why You Applied for the Card in the First Place

A good way to remember all those benefits is to actually write them down in simplified form somewhere, so you can look at it once in a while to refresh your memory. I know it is a bit of work, but I applied for one of my cards eight years ago. Would you remember all the details from eight years ago? Or let’s say you applied for a 0% balance transfer charge card. Now that the introductory 0% APR period is over, do you still need to keep it?

6. Use Charge Cards Whenever Possible

This is only for those who can pay off the balance of course, but remember to use your charge card every chance you get! I know there are many consumers who like to make fun of those who use charge cards for the smallest purchases, but did you know that it is actually easier (and faster) for both the buyer AND the seller when small purchases are paid using a credit card account? When you don’t even need to sign for a purchase at some of these stores, using a charge card is a no-brainer.

There are many more ways you can save with a charge card account, but if your charge card isn’t working for you yet, start with the tips up above.

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“Charge cards and debit cards have the exact same benefits.”

I’ve heard this statement for a long time, but I wanted to test it out to see if it is true. Unfortunately, we often pass along information we received because we either assume it to be true, or we’ve heard it from a single reputable source.

Basic differences between a debit card and a credit card account

When you use a charge card account, the credit card company essentially extends you a loan for the amount purchased. You typically sign for the purchase, and when they send you a bill, you are obligated to pay your balance. If you do not, the charge card company will charge you annual percentage rates and fees.

A debit card is associated with your bank account. When you make a purchase, that exact amount of cash is taken out of your bank account within days. When you use a debit card, you typically use a PIN number.

The cards look the same, are scanned the same, but are very, very, different.

Head-to-head comparison

Which offers the best card protection benefits? Credit Cards.

Credit card purchases are covered under the Fair Credit Billing Act. The act states that when you purchase something with a charge card account, you have no liability for fraudulent purchases, damaged goods, and products that were never delivered.

If you make a purchase with a debit card, the Electronic Transfer Act does provide some protection during a dispute or error. If you notify your bank within two days, your liability is limited to $50. However, between two days and six days your liability could increase to $500. Waiting more than six days could mean you have no coverage.

Currently, Visa and MasterCard do have policies in place to protect consumers. MSN reports:
Visa and MasterCard also offer zero liability for unauthorized transactions made over their networks.

But, Visa does have an exception for negligence, and MasterCard also has an exception for those with delinquent accounts or who have reported unauthorized use within the last two years.

Remember, debit cards rely on card policies for protection, while charge card liability is the law.

Which offers the most convenient way to resolve a problem with purchases? Charge card accounts.

In the case of debit cards, MSN Money claims
Consumers must try to resolve the dispute with a merchant on their own before they contact their debit card issuer. “The merchant may want to make some other arrangement like a store credit or a gift certificate or some other thing,” says Hogarth, of the Fed. “That isn’t exactly putting cash back in your account.”

My experience: I recently purchased a product online with my charge card. The item has a full 60-day cash back guarantee, but after four emails were not returned, I made a call to my charge card company. Within a day, the cash was put back into my account and the charge card company took full responsibility. It sounds like the process would not have been so simple with a debit card.

Which is better if you work for a company that uses a reimbursement system? Credit cards.

With a credit card account you have the ability to delay or float payments. This is especially convenient when you use a reimbursement system with your employer. You can make the purchase today and you have 30-40 days until the payment is due. For anyone who makes purchases on behalf of their company, a credit card account certainly carries the advantage.

Which is better when renting a car? Charge cards.

Most major credit cards offer an auto rental collision damage waiver. In addition, several major car rental companies do not accept debit cards as a form of payment.

My experience: Last year, our family was in Australia and I wanted to use a debit card to rent a car. In order for the company to accept my debit card, I would need to let them to put a $500 hold on our checking account. Since we planned to spend cash for purchases on our vacation, I wasn’t sure that we had enough available balance for the hold so I used a charge card account. When I returned the vehicle, they billed the charges on to the debit card. On that occasion I was glad to have a credit card in my wallet.

Which is better for avoiding charge card debt? No brainer — debit cards.

This, by far, is the strongest argument in favor of the debit card. If it helps you control your spending and helps you avoid credit card debt, then that one feature alone is as precious as gold. If you currently have charge card account debt or are trying to get out of charge card debt, then cutting up the charge card account and using a debt card is probably one of the smartest decisions you can make.

Which provides more rewards? Credit card accounts.

Credit card account rewards are one of the primary reasons why consumers use credit cards. Anti-charge card consumers say that credit cards don’t really offer valuable rewards, but I’ll let you be the judge.

PerkStreet Financial is an example of a bank that is now also offering cash back for debit card purchases.

Which is best to use overseas? Depends on your particular bank and charge card account.

Depending on your bank policy and your credit card foreign currency exchange rate, either one might be better. In my case, my ATM charges a 1% fee for use overseas, but I do have a Schwab Visa card that offers a 0% foreign currency exchange and 2% cash back. However, it is not uncommon to pay a 3% foreign currency exchange fee with a credit card account. If you plan to travel overseas, you will need to explore the best way to exchange foreign currency before heading on your trip.

Which is more expensive? It depends on use.

Both debit cards and charge cards have associated fees. Looking at one of my credit card account fees and finance charges, if I miss a payment, I’ll pay between $15-$39. If I don’t pay my balance in full, the default interest rate (annual percentage rate) is 23.99%. Yes, that is expensive.

ING Direct claims the average bank overdraft charge is $30. However, a bank can also manipulate overdraft fees so they really stack up. Debit cards can be expensive too.

A person who overcharges her account five times in the month and a person who pays a month of interest and late payments are probably paying a similar amount in fees.

Moral of the story: Both are extremely expensive to use if you don’t plan to learn how to budget and properly manage your finances. If you don’t track your spending well, both could mean a financial train wreck is waiting in your future.

Ultimately, it comes down to this last question.

Do debit cards feel more like real cash? I’m undecided.

Creditcards.com reports
A recent TNS Financial Services Consumer Credit Card Account Program Study indicated that over 60 percent of consumers prefer using debit cards to charge card accounts as a payment vehicle, because debit feels more like “real money.”

Ultimately, I’m yet to be convinced.

Does sliding a plastic ATM card feel more like cash than a plastic credit card? I’ve personally never felt the difference. Do you?

Last year I totaled all my charge card account purchases to find out if I really spend more with credit than cash. I was actually surprised by the results because I saved money by using a charge card account. As such, I’m guessing we really can’t answer this question until someone sits down and does some real research.

Final conclusion

Choose whichever method best helps you manage your cash, but realize credit card accounts do clearly have more benefits. The risk may outweigh the benefits, so I’m not suggesting you use a charge card. Also, you might consider comparing the cost of paying cash versus either a charge card or debit. Just understand the differences, and then make an informed decision.

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