The Financial "Power Tool" in Your Wallet

  • James H. Lee

Credit Card PileCredit cards are a "power-tool" that don't require safety googles or gloves. However, like many other tools, they need to be handled with a bit of common sense.

Some people get accidently buried in credit cards, while others use successfully use them to build their business. The really smart ones know how to work their perks.

I became familiar with credit cards while temping for a number of banks during my college years in the late 1980's. The industry has evolved considerably since then -- credit cards have become far more specialized and competitive.

Some great websites for making comparisons include and

Depending on your needs, here are a few of my favorites:

Best Card for Balance Transfers: Discover It card offers a 0% annual interest rate for the first 18 months with no annual fee, plus 1% cash back on purchases. For those with fair credit, the Barclay Arrival Plus Mastercard offers a 0% intro rate for the first 12 months, with a $89 annual fee (waived the first year).

If you can't pay down your card within a few months, you may want to consider a home equity line of credit. The rate will be lower, plus you may receive a tax-deduction on the interest paid.

Best Credit Card for Cash Back: Capital One Quicksilver provides unlimited 1.5% cash back on all purchases with no annual fee. Cash rewards can be sent via check, or used to credit your account. The card also offers travel benefits, including no foreign transactions fees, concierge service, travel and emergency services, emergency roadside dispatch, and auto rental collision damage waivers.

Capital One Spark Business offers most of the same travel benefits, but with 2.0% cash back. Cash back rewards accumulate when you need them the most. (I put most of my business expenses on this card and accumulated $800 in rewards last year.)

Best Card for Perks/Big Spenders: The Chase Sapphire Reserve card has so many perks that they don't even bother with advertising. The annual fee is very steep at $450 per year, however, that includes $300 in annual travel credits. Triple points are earned for airfare, hotel, and dining purchases. Travel redemptions booked through Chase Ultimate Rewards receive a 50% bonus. Cardholders also have special access to over 900 first-class airport lounges worldwide through complimentary Priority Pass membership. Travel protection features include trip cancellation insurance, auto rental collision damage waivers, and lost luggage reimbursement.

There is also the legendary American Express Black Card, which comes with a $2,500 annual fee.

OK, now back to reality... here are a few guidelines to follow when managing your
credit cards:

* Pay off your balances every month.

* Find out what benefits your existing credits cards offer. You may be surprised. Go online and see if you've accumulated points or cash rewards.

* American Express and Discover cards may offer good benefits, but are not accepted everywhere.

* Small business owners should consider paying all their regular bills by credit card rather than by cash or check. This makes accounting and record-keeping easier, frees up cash flow, and accumulates the most cash/travel rewards.

* Be careful of credit cards that offer big up-front rewards or special interest rates.

* Avoid credit cards attached to a single retailer or merchant.

* Don't build a collection of credit cards. Having a back-up card is fine, but signing up for too many credit cards could damage your credit rating and make you vulnerable to identity theft. Keep it simple.

* To close a credit card account, simply pay your bill in full, cut your card in half, and mail it to the issuer with a request to close the account. Keeping old credit cards will generally have a better effect on your credit rating than keeping new ones.

As a habit, it is good to review your personal credit report once every year or two.  A free copy is available here.

James H. Lee, CFA, CMT, CFP®