Ask Liz Weston

Get smart with your money

Credit Cards

Find a better credit card

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Dear Liz: One of my credit cards offers mediocre rewards — mainly an online store where I can use points to buy products I don’t really need. I would like a card from the same company that offers better rewards, but this is my oldest credit card and I don’t want to hurt my credit score by closing it. Should I just open a new card and use this one sparingly? Can I call the company to seek better rewards without closing the account? Thanks for any help you can offer.

Answer: If you have plenty of other open accounts, don’t be afraid of closing one occasionally. Most credit issuers continue to report the details of closed accounts to the credit bureaus for years, so your good history with this card will continue to contribute positively to your scores even if you close the account.

With that in mind, you can call the issuer and ask for a better deal, which will usually mean opening a new card. You also can shop for new cards at one of the many card comparison sites, such as NerdWallet, Cardratings.com or Creditcards.com.

Should she use 0% credit card offer to pay student loan debt?

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Dear Liz: I currently owe $27,000 in student loans at an 11.5% interest rate. I have excellent credit and about $8,000 in savings and contribute 17% of my income to a workplace retirement plan. Should I invest less in my 401(k) and pay off debt instead? I just got a balance transfer offer for 0% for 15 months with a 3% transaction fee. I’m considering taking $3,000 and putting it toward my high-interest student loan.

Answer: If you had federal student loans, transferring any part of your debt to a credit card would be a bad idea. That’s because federal student loans come with consumer protections that allow you to reduce or even eliminate your payments if you fall on hard economic times. You certainly wouldn’t want to reduce your retirement savings to pay off these flexible, fixed-rate loans.

The higher rate you are paying indicates that you have private student loans, which typically don’t have the same protections and which usually have variable rates that will climb higher when inflation returns.

Credit card debt has similar flaws — plus you would lose the interest rate deduction on any student loans you paid off this way. Instead, you may want to investigate the option of refinancing and consolidating your private student loans with a credit union. Credit unions are member-owned financial institutions that often offer better rates than traditional lenders. One site representing credit unions, CUStudentLoans.org, currently advertises variable rates on consolidation loans that range from just under 5% to just over 7%.

If you continued to make your current payments on a consolidated loan with a lower interest rate, you would be able to pay off your loans years faster — saving on interest without jeopardizing your future retirement.

Close any cards you used at Target during the breach

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Dear Liz: My debit card was part of the recent Target data breach (my credit union called me). I’ve read articles telling me to pull my credit reports. Here’s the thing: I already requested two of my three free credit reports in early December. When I read about the Target incident, I requested the third one. So now, if I pull a credit report, I’d have to pay for it. I’m very concerned about this, as my finances are tight.

Answer: The information that was stolen in the Target breach — and immediately put up for sale on black-market sites — is not the kind of personal information that’s typically needed to open new accounts, said John Ulzheimer, credit expert for CreditSesame.com. So buying your credit reports or investing in credit monitoring, which is how you would spot new account fraud, isn’t strictly necessary, he said.

The information that was stolen can be used in what’s known as “account takeover,” which means the bad guys can take over existing accounts and make fraudulent charges. In the case of a debit card, that means they can drain your bank account. With a credit card, you wouldn’t have to pay the fraudulent transactions, but dealing with them could still be a hassle.

Either way, you would be smart to close any debit or credit card used at Target between Nov. 27 and Dec. 15, the time of the breach, and ask for a replacement, Ulzheimer said.

Use a credit card like a debit card to avoid debt

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Dear Liz: Here’s a suggestion for the reader who prefers a debit card to a credit card so she will not get in debt: Use your credit card as a debit card. Every month I pay any credit card balance plus an additional amount equal to a month’s average purchases. Then I keep track of what I spend so I don’t go over that amount during the billing period. This is the same as paying the bill one month ahead. I don’t go into debt at all and still get my reward points.

Answer: Another way to accomplish the same end is to check your credit card balance every week and move that amount to a savings account. When the bill is due, you can move the money back to checking from savings and pay in full. It’s important in any case to stay on top of your balances and make sure you’re not spending more than you can pay off each month.

Don’t let 0% offers result in maxed-out cards

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Dear Liz: I’m trying to transfer some credit card balances to existing accounts that are now offering 0% for 12 to 18 months. If I come close to maxing out the credit limit using one of those offers, will that affect my credit score adversely? Or, should I open up a new card, since I’ve gotten several 0% offers recently?

Answer: Using all or even most of your credit line on any revolving account can hurt your credit scores.

Although opening a new card may ding your scores a few points, it’s usually preferable to spread your debt over several accounts rather than pile it all on one card. This advice assumes you plan to use these offers to pay off your debt as rapidly as possible, rather than as an excuse to continue carrying balances.

If you can’t pay off your balances before the teaser rates expire, consider getting a three-year personal loan from your local credit union and using that to get free of debt. The interest rate you pay may be somewhat higher initially but you’ll likely save money in the long run.

Debit cards can be riskier than credit cards

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Dear Liz: I’m in my early 30s and never carry cash. I charge everything on my debit card. This seems to be a topic of discussion in my office. My co-worker keeps getting his identity stolen and says that using debit cards to pay for everything wreaks havoc on your finances. He says I should use my credit card instead. I just finished paying off all the expenses that creep up when buying a house and really don’t want to start using credit cards again. I don’t think I’d be as good as keeping track of where my money goes when it’s not coming automatically out of my account. But I don’t want to end up losing it all now that identity theft is running rampant. What’s the best solution here?

Answer: What you like most about your debit card — that the charges come directly out of your checking account — is also its greatest flaw. A bad guy who gets access to your account can drain it, and you’re left fighting to get your money back.

Contrast that with fraud on a credit card: You’re not required to pay the disputed charges while the credit card issuer investigates.

That doesn’t mean you should never use a debit card, but you should avoid using it in higher-risk situations. Using a debit card for online purchases isn’t smart, because your computer could be compromised with malware and because merchants often store purchase information in less-than-secure databases.

You also shouldn’t hand your debit card to anyone who could take it out of your sight, such as a waiter at a restaurant, since that person can swipe it through a device called a skimmer to steal the card’s relevant information before handing it back to you. Gas stations and outdoor ATMs can be risky as well, since criminals can more easily install devices to swipe your information than at more protected, better supervised locations.

Even at trusted merchants, though, things can go wrong. Tampered debit card terminals at Michaels craft stores allowed thieves to access customers’ bank accounts.

Using a credit card clearly has advantages, and doesn’t have to be an invitation to debt. Most issuers allow you to set up text and email alerts that let you know when balances exceed limits you set. Apps on your smartphone can help you keep track of charges as well.

Vigilance is the key to limiting the damage caused by identity theft. You should review transactions regularly on all your credit and bank accounts, regardless of what method you choose to pay.

Finally, keep in mind that debit cards do nothing to improve your credit scores, since debit cards are not attached to credit accounts. Light but regular use of credit cards can help achieve good scores, which in turn will save you money on mortgages, auto loans, utility deposits and, in most states, insurance premiums. You don’t need to carry a balance to have good scores, so exercising a little discipline in tracking your balances and paying them in full each month can save you money.