If you’re between the ages of 25 and 40, your financial profile is probably a little more robust, and you’re ready to take your credit card strategy to the next level. Here’s a cheat sheet of goals and strategies you can use at this stage of your financial journey.
[Read: Best Balance Transfer Cards]
Financial Goals
Most consumers in this age group are getting into the swing of things financially, ready to conquer that next goal.
“My husband and I are working towards financial independence, with the goal of retiring before 50,” says Henah Velez, a 34-year-old travel writer and former executive producer of “The Money with Katie Show.”
“We also just purchased our first house a year ago,” Velez says, “so turning it into our home has been a primary goal of ours.”
Pay Down Debt
At this age, it’s most likely you’ve racked up some credit card debt. According to Experian, Americans owe $1.23 trillion in credit card debt alone. And that number can vary depending on how old you are.
Here’s the average credit card debt broken down by generation:
— Generation Z (18 to 28): $3,553
— Millennials (29 to 44): $7,068
— Generation X (45 to 60): $9,684
— Baby Boomers (61 to 79): $6,766
Now, “just pay down your debt” is easier said than done. There are a number of strategies you can employ that correlate with your financial profile. It’s just a matter of picking the right strategy or combination.
— The snowball method. With this strategy, you make the minimum required payments on all of your debts and then direct any leftover money to the debt with the lowest balance. This way, you’ll start eliminating your smallest debts first, which will pick up momentum, allowing you to eventually tackle larger debts.
— The avalanche method. This is the opposite of the debt snowball method. With the avalanche, you make all of your minimum payments, but you put leftover money toward your debt with the highest interest rate. This allows you to start reducing interest charges more quickly, focusing on bringing down those balances.
— The debt blizzard. If you have several accounts that need to be paid down and they also have high balances, consider combining the two previous methods into a debt blizzard. With this method, you focus on the smaller accounts first, paying them off until you have a more manageable number of accounts — the snowball method. Then, you shift focus and pay down your accounts with the highest interest first — the avalanche method.
— Balance transfer credit cards. A tried and true method, using a balance transfer card allows you to combine multiple debts into one more manageable credit card payment. Many balance transfer cards also come with a 0% introductory annual percentage rate period, providing a lengthy window (sometimes close to two years) to pay down your debt with no added interest.
Remember, these methods are just a bandage. To keep debt under control, you have to address the root of the issue, which can be the way you manage money.
Optimize Rewards
If you haven’t already, now may be the time to play the credit card game. “Now that we have a solid foundation for our expenses, net worth and credit score, we focus primarily on strong sign-up bonuses or premium benefits,” says Velez. “I just opened a Delta SkyMiles® Gold American Express Card actually because we live in Atlanta where Delta’s hub is, and 80,000 points for a welcome bonus with a waived fee for the first year seemed like a no-brainer.”
Prepare for That First Home
Your credit score is a key determining factor for your mortgage. A higher score also means a lower interest rate. When prepping your financial profile for a mortgage, you should:
— Continuously monitor your credit. U.S. News offers a credit monitoring tool, and keeping a vigilant eye on possible errors is extremely important at this stage.
— Keep your credit card balances low. This goes hand in hand with paying down debt, but a good rule of thumb is to keep your credit utilization under 30%. So, if you have a credit limit of $5,000 on one credit card, you should really only spend up to $1,500.
Credit Card Strategies for 25- to 40-Year-Olds
At this stage of your financial life, consider boosting the way you handle your credit cards.
Tailor Your Credit Card Spending
If you’re a foodie who likes cooking, consider a credit card that rewards you for spending at the grocery store. Prefer takeout? There’s a credit card for that, too. In fact, there’s a credit card for every way of living — you just need to figure out what that is for you.
“We strategize our credit card spending around racking up points that fund my travel (and by proxy, travel writing),” says Velez. “I use them almost exclusively for payments instead of cash, checks, debit cards, etc. due to my goal of getting as many points as possible.”
If money is tight — like it is for the majority of Americans — there are credit cards that reward you for spending on necessities, like home utility bills, streaming services and cellphone payments.
The U.S. Bank Cash+ Visa Signature Card, for instance, lets you earn 5% cash on your first $2,000 in combined eligible purchases each quarter in two categories of your choosing. And the categories include TV, internet and streaming services, fast food, cellphone providers, home utilities and ground transportation. You can also earn 2% cash back on one everyday category of your choosing, such as gas and EV charging stations, grocery stores or restaurants, then 1% cash back on all other purchases.
Consider a Travel Credit Card
Even if you don’t consider yourself a frequent traveler, having a travel card in your wallet could be beneficial. Rewards programs like Chase Ultimate Rewards or American Express Membership Rewards consistently offer valuable transfer partners, giving you the flexibility to travel how you prefer.
“Travel rewards go much further for us, as the cards we use have strong partners we can transfer our points to,” says Velez. “For example, I was able to transfer 25,000 American Express Membership Rewards points to KLM/Flying Blue last year for a round-trip flight to Paris in the spring — the cash back value would not have been comparable. We rack up about 150,000 points a year with our mortgage and regular spending, so it goes a long way in funding travel.”
Maximize Rewards
“Understanding the credit card landscape and the world of points and miles is fun for me but can be really confusing and overwhelming,” says Velez. “My general advice for anyone who wants to benefit but doesn’t want to spend too much time thinking about it: Pick a good entry-level premium card with decent partners to transfer to (like the Chase Sapphire Preferred® Card), and direct all your focus there.”
If you decide to upgrade to a credit card with an annual fee, make sure the benefits outweigh the cost. The same goes for welcome bonuses. Oftentimes, it can be too easy to overspend to hit that threshold. But that’s just counterintuitive and possibly adds unmanageable debt.
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Are You 25 to 40? Here’s the Best Credit Card Strategy for You originally appeared on usnews.com