Q: I've accumulated several cards in my wallet -- national credit cards, store cards, debit cards and gift cards. Which should I use in what situations, and which should be my "go-to" card?
A: It can be confusing, because choosing the right financial resource to use depends on your circumstances and habits. However, here are some thoughts that should help you sort out which cards should be in the front of your wallet:
- Use up gift cards as quickly as possible. Gift cards are notorious for assessing onerous fees that steadily whittle away at the value remaining on the card. Some cards even expire after a limited time. So, if you don't use these up promptly, it can be akin to throwing money away.
- Only use store cards when significant discounts apply. Simplification can be a key to staying on top of personal finances, so in general it is better to consolidate activity into one or two "go-to" cards rather than complicate your record keeping by using a variety of individual store cards. The exception is when those store cards offer a meaningful discount on purchases you were going to make anyway -- then the money saved may be worth the extra effort.
- Know your credit and debit card fee terms. Often the devil is in the details. Knowing what each card charges for withdrawals, cash advances and other transactions can be a key to deciding how to use these resources most efficiently.
- Credit is better if you pay your balances in full. In addition to your transaction habits, your payment habits also factor in to deciding which type of card is better. If you are in the habit of paying your credit balances off in full every month, a credit card can have some key advantages over a debit card. You are essentially using money cost-free during the payment period, and rather than having to keep track of a series of transactions in your checking account, you can just make a single payment out of that account every month. Credit cards also provide better fraud protection, so you don't risk having your checking account cleaned out by information theft.
- Prioritize credit cards differently depending on how you pay your bills. If you leave an unpaid balance at the end of the month, make sure you use the credit card with the lowest interest rate first. If you don't leave a balance, the interest rate is irrelevant, so prioritize based on which card offers the most useful rewards.
By the way, even though canceling credit cards carelessly can negatively impact your credit score, it still may make sense to periodically go through your wallet and consider closing the cards you rarely use. After all, every card you keep open is a potential opening for financial fraud.
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