Should you chase card sign-up bonuses?

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Some days it seems like the main purpose of my mailbox is to get a new credit card offer. While most should be shredded, does it make sense to consider some of the alluring ones?

David GardnerFor the camera

Before applying for a new card, let’s make sure you don’t misuse the ones you have. Some personal finance experts recommend that even wealthy people avoid credit cards. It is true that they can be weaponized by allowing you to constantly spend more than you earn. Plus, studies show that even highly educated people tend to spend more with a credit card than with a cash equivalent. Retailers realize this, which explains their willingness to pay so much for credit card processing. So before looking for new credit card offers, be sure to take care of the long term by paying off your credit cards in full each month and saving at least 15% of your income.

Some may be hesitant to buy new credit cards because they are worried about their credit score. It is true that new credit applications affect your scores, but the impact is relatively minor. Your history of paying your bills on time is much more important. Another critical factor is the percentage of available credit you use in a month. Your score will plummet if your credit utilization exceeds 30%. To determine your credit usage, simply add up the current balance of all your cards, then divide that amount by the combined credit limits of those cards. You must include the balance from the last statement even if you pay off all of your cards each month. This way, a new credit card with a healthy limit can actually improve your credit score by reducing your credit usage.

If you manage your credit wisely and reach your savings goals, it may be worth researching new credit card offers if you enjoy gambling. cards. When a card has faded, you should stop using it, except for the occasional transaction to keep the card open. If it’s an annual fee card that no longer makes sense to you, ask the company to switch you to a no-fee card that allows you to preserve your available credit limit.

New card offers usually come with a promise of bonus cash, points or miles, often with an obligation to charge a certain amount over an initial period. Currently, Wells Fargo has a $200 bonus for its Active Cash card, which has the gold standard of no annual fee with a 2% cashback bonus. Although cash is easier to quantify and use, bonus points and miles can be even more lucrative. For example, United’s $95 Chase Explorer Card offers up to 70,000 bonus miles. According to your source, United miles are worth about 1.1 cents per mile. So that effectively becomes a $770 bonus, plus you get the $95 annual fee waived for one year plus baggage fee waivers and other perks. But this card loses its value after the first year, unless you travel regularly with United.

Good web resources for new card offers are Nerd Wallet, One Mile at a Time, and Points Guy. Be a little wary of their breathless card reviews, as these sites are heavily incentivized through affiliate links to trick you into applying for a card.

When you switch from one credit card to another, you are playing with fire to some extent. A steady stream of new credit cards can be misused and leave you with far less wealth in the end if you try to raise fees to meet signing bonus requirements. Only touch it if your finances are solid. If you’re wise enough to transcend this stuff, consider trimming the offers in your mailbox by heading to optoutprescreen.com. Then you can move on to a less dangerous hobby!

David Gardner is a Certified Professional Financial Planner with Mercer Advisors practicing in Boulder County. The opinions expressed by the author are his own and are not intended to serve as specific financial, accounting or tax advice. They reflect the author’s judgment at the date of publication and are subject to change.

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