January tune-up: Your credit cards

air-miles-cardCredit card rewards programs change so often that it makes sense to review your “credit portfolio” at least once a year—and now’s as good a time as any.

This post is directed at people with good credit who don’t carry balances. If that’s not you, then focus on paying off your credit card debt and store this information for future use.

If you do have good credit, you probably want to keep it that way. That means not closing or opening a bunch of accounts at once. You can, however, selectively prune your portfolio by closing an account or two and add the occasional new card without tanking your scores. Just don’t open or close accounts while you’re in the market for a major loan such as a mortgage, HELOC or auto loan.

With those caveats covered, your first task is to review the cards you have now to see if they still deserve a place in your wallet. The first to go: any card you’re not using that charges an annual fee. If the card doesn’t charge a fee but you haven’t used it in a year or more—and see no reason to do so in the future—you’ll have to weigh whether the hassle of monitoring the account outweighs the potential ding to your credit.

Because we have more than two dozen open credit accounts, many with high limits, I finally shut down a couple old Chase cards we hadn’t used in eons…with no perceptible impact on my scores. I also shut down a British Airways card that charged an annual fee because I had a better alternative—a Starwood Preferred Guest Amex card that has a great earn rate and a huge array of ways to use rewards, including a way to dump points into my British Airways frequent flier program, should I want to do so.

Next scrutinize the cards you do use. Are you able to earn rewards at a good clip and cash them in easily? You should be getting an average rewards rate of at least 1 percent and preferably closer to 2 percent of your purchases. (Some programs deliver even more.) If you’re not using your rewards, are you working toward a reasonable short-term goal? Given how fast points and miles get devalued, you don’t want to delay too long in using them. Remember the mantra: Earn ’em and burn ’em.

Now see if there may be better cards for your needs. Check out NerdWallet’s list of best reward cards, which is updated frequently. (Looks like you also can ask for advice and recommendations in the comments.) Another site I like to check for great travel rewards card offers is The Points Guy.

Think about how and where you use your cards and what type of rewards you’re after. Cash-back cards are typically the easiest rewards to get and redeem. Hotel cards can give you elite status with certain perks. Airline-branded cards can make sense for frequent fliers—if you check a couple of bags on a couple of flights, you’ll often offset the annual fee. More general travel cards can allow you to put miles into different plans or offset the costs of travel.

Ideally, you’ll find a card that meets your needs while offering a fat sign-up bonus. To get the bonus, you’ll have to spend a certain amount within a certain time, so make sure you can do that before you submit the application.

While cars no longer require traditional tune-ups, your finances still do. This month I’ll be reviewing some areas of your money that deserve some extra scrutiny and offering suggestions for the best moves now. Stay tuned for more posts–and to make sure you don’t miss any, you can sign up for my newsletter using the link on my home page.

Thursday’s need-to-know money news

Passenger airplane landing on runway in airport.How travel rewards can make a vacation even sweeter, deciding on whether to buy or rent, and how to avoid pitfalls on the road to retirement.

 

The Best Travel Rewards Credit Cards in America
Using your credit card could save you money on a vacation.

 

Same Sex Couples: Celebrate, Then Call a CPA

How does the Supreme Court ruling on DOMA affect the finances of same sex couples?
When to Rent vs. Buy a Home
Weighing the pros and cons of buying vs renting.

 

Best cars for teens

Here are 14 cars with top safety ratings that don’t cost a fortune.

 

10 Keys to Retiring on Your Own Terms
The sooner you begin planning, the smoother the road to retirement will be.

 

 

Tuesday’s need-to-know money news

Here are some important money stories to check out today:Education savings

Should the Government Mandate Free Credit Scores?

Despite an abundance of free credit score offers, consumers still lack easy access to their FICO and Vantage scores, often the determining factor in credit approval.

Applying Sage Graduation Advice to Your Financial Life

Oh, the places you and your money will go!

Maximize Rewards Offered by Your Credit Cards

A new website shows how to get the most from your reward points based on how you spend.

What Can You Afford: House, Car or Vacation?

A guide to what you can and cannot afford during the summer spending season.

 

Monday’s need-to-know money news

Flying Piggy BankHow to get the most out of your summer vacation, protecting yourself from medical identity theft, correcting financial myths and how to start saving for retirement.

3 Ways to Maximize Your Frequent Flier Miles This Summer

While holiday blackouts can make redeeming frequent flier miles difficult during the summer, there are still good deals to be had if you know where to look.

How to Protect Yourself from Fraud at the Hospital

Identity thieves are targeting victims at their most vulnerable. Find out what you can do to protect yourself.

Want More Time Off? Some Employers Let You Buy It

A novel approach to managing vacation time could allow you to purchase a day off or sell time you’re not going to use.

Financial Advisers Correct Common Personal Finance Myths

Meet the five common personal finance myths and how to avoid them.

How To Start Saving For Retirement

The good news is that it’s not too late. The bad news is that it will be if you wait any longer.

The death knell for hotel rewards cards?

credit card detailed 1Rewards card ninjas have long loved hotel rewards cards because the associated loyalty programs tend to be a lot more generous and easy to use than airline cards.

That may be changing.

Brian Kelly at The Points Guy has an excellent series of posts on the coming changes in hotel rewards programs, and there’s not much good news. (You can start with his post “The State of Hotel Loyalty Programs: A Devaluation Story.”) Starwood and Marriott are diluting their programs, but some of the most dramatic changes are in the Hilton HHonors program, which will not only require more points for most stays but will upgrade a bunch of properties to higher, more expensive categories. Hotels like the Conrad Tokyo will go from 50,000 points per night to 80,000 to 95,000 points.

In a warning to hotel loyalty programs, Kelly says these changes could come back to haunt them:

As you hack away more and more of the value proposition, I think you’ll realize that consumers are actually pretty smart and will start shifting their spend towards chains that actually reward loyalty and not punish it. This may not come in the form of traditional points, but many boutique hotels offer far more enriching experiences with more amenities and at cheaper prices. This Hilton devaluation was so brazen that I do think it will hurt them dearly in the end when Amex and Citi cardholders reduce their spend or cancel their cards. In fact, if the impact is so negative, I could see those issuers coming after Hilton since there are likely clauses in the contracts that state that Hilton can’t materially change the program (since the credit card companies are buying millions of dollars worth of points that their cardholders can use at a later time and date). I’ll be complaining to both American Express and Citi about the Hilton changes and hope everyone else considers doing so as well if you don’t like the changes.

Even if you plan to stay loyal to your card, the program devaluations underscore what has always been true: you don’t want to hoard rewards. Earn ’em and burn ’em to make sure you get the most value.

What I learned from our “almost free” vacation

Back in June I wrote a post about “How to get free summer travel.” I’d arranged a 5-day trip with my daughter to the Pacific Northwest using a variety of rewards programs. The trip, which we took over Labor Day weekend, was a heck of a lot of fun. Like most vacations, it wound up costing a bit more than planned but I also learned a few things.

Including:

Re-price your reservations before you go. I checked both hotel and car reservations a few days beforehand to see if prices had dropped. They hadn’t at the Doubletree in Portland, which was in fact sold out. But the rates at Enterprise car rental fell like a rock. Plus, Enterprise emailed me a last-minute 10% off coupon for being part of its frequent traveler program. My cost for the two-day car rental went from over $100 to just $37. I love that.

Don’t try to make a same-day connection on Amtrak. We took the sleeper car up from Los Angeles, and the train fell waaaaay behind schedule–five hours, in fact. That was good news for us, since we got to see some gorgeous scenery around the California-Oregon border that would normally pass by in the dark. Passengers who were trying to make a connection to the Empire Builder, the train that goes from Portland to Chicago, weren’t so happy. They had to get off in Klamath Falls and ride several hours on a bus to meet the other train. If I were to book an Amtrak trip that involved a connection, I’d try to arrange it so that we had an overnight stay in between.

Portland’s public transportation is awesome. There was a light-rail MAX station right outside our hotel, and it took us everywhere we wanted to go while we were in town, including the Saturday Market and the zoo. A day pass for an adult was just $5. Parking at the zoo alone would have been $4, and a hassle, since there are limited spaces. When it was time to leave, I took the red line out to the airport to pick up our rental car–easy peasy.

Check out the artist/farmers markets. Speaking of the Saturday Market: I was blown away by many of the vendors there. This weekend market along the river features some really skilled craftsman offering handmade stuff at reasonable prices. I stocked up for Christmas.

Splurge a little. My daughter’s a huge fan of the Great Wolf Resort and its indoor water park south of Olympia. The rates in the summer can be steep, but my sister and I decided to split the cost of a Kid Cabin room with bunk beds. That way, we got to spend more time together, our kids had a ball and we were each out of pocket $160 rather than $320.

Peach fritter with cream cheese? Might want to skip that. My friend Michelle Rafter suggested we meet at VooDoo Donuts for a treat. Yes, the long wait was worth it, but no, I don’t think I’d order the peach fritter again–it was almost as big as my head. Next time it’ll be the maple bacon donut, for sure.

How to find the right rewards card

Dear Liz: Should we get a rewards card? We have excellent credit scores. I’m a stay-at-home mom and my husband has a good, steady job. We spend about $6,000 a month with our debit card or automatic drafts from our checking account. I think our family should have a rewards card. My husband disagrees and says that for the amount we spend each month, we wouldn’t rack up any points. Is he right? If we should get a card, how do we pick the right one?

Answer: If you’re positive you’ll pay your credit card bill in full every month, you would be great candidates for a rewards card.

Right now, you’re passing up at least $720 in rewards annually. That assumes you’d be getting a card that rebates 1% of your purchases. With excellent credit scores, you could qualify for even richer rewards cards, since those are reserved for people with the best credit.

The simplest rewards cards are the cash-back cards, which rebate a portion of the purchases you make. Card comparison site NerdWallet recently named the Chase Freedom card as the best cash-back card with no annual fee. The card gives you a $200 sign-up bonus if you spend $500 in the first three months. All your purchases earn 1%, and you can earn a 5% rebate on certain categories of spending that change every three months.

NerdWallet also recommends American Express Blue Cash Preferred, which offers a $100 bonus if you spend $500 in the first two months. Supermarket purchases earn 6% cash back, and spending at gas stations and department stores earn 3%. Everything else earns 1%. “There is an annual fee of $75,” NerdWallet.com notes, “but your rewards easily offset the cost. In fact, $25 in groceries every week is enough to make up the difference.”

There are other types of rewards cards that earn points or miles for travel, or discounts on gas. You can learn more about these cards and shop for offers at NerdWallet or one of the other card comparison sites, including CardRatings.com, CreditCards.com and LowCards.com.

It’s important, once you get the card, to keep track of your spending so you never accumulate a balance you can’t pay in full. Always pay your account on time, since a single skipped payment can knock up to 110 points off those excellent scores.

5 debit card don’ts

ShopSmart, the excellent magazine from the publishers of Consumer Reports, just came out with a list of ways you shouldn’t use your debit card. Among them:

1. Don’t use your debit card for big purchases or when you shop online. Credit cards can serve as a middleman in disputes, so you’re typically not out any money if there’s a problem.

2.  Don’t take your debit card on trips. Credit cards often have travel insurance; debit cards don’t.

3.   Don’t use a debit card if you’re worried about getting ripped off. You have more protections under federal law with a credit card. You’re only responsible for up to $50 in unauthorized purchases, and credit cards typically waive that small amount. “With a debit card, you can be out $500 if you don’t report the theft or loss of your card or PIN within two business days of discovering the problem,” the magazine noted.

4.      Don’t rely on a debit card if you want to raise your credit score. Debit cards don’t build credit history. Credit cards do.

5.      Don’t use your debit card if you want to earn money on purchases. Banks have eliminated or reduced most debit card reward programs, while many credit card issuers have enhanced theirs.