Money Management

They’re all important ones to tackle. 

There may come a point in 2023 when you’re tempted to apply for a new credit card, either because you want more financial flexibility or because you’re eager to capitalize on a generous rewards program that just got introduced. But before you move forward with a new credit card application in 2023, you should make a point to address these questions.

1. Do I already have credit card debt?

A lot of people are apt to be starting the new year with credit card debt hanging over their heads, especially on the heels of the holiday season. If you have a balance you’re carrying forward, though, then you probably want to hold off on applying for a new credit card. After all, you don’t need the temptation to spend more and grow your debt rather than whittle it down.

2. Is my credit score in good shape?

You may come across some tempting credit card offers in the new year. But if your credit score is only mediocre, you might struggle to qualify for them. Before applying for a new credit card, it could pay to check your credit score. And if it’s not in the best shape, you may want to work on boosting it before you chase a credit card offer.

3. Is it a good time to go after a sign-up bonus?

You can often snag a sign-up bonus in the course of getting a new credit card. While the value of that bonus might vary from one card to the next, if you meet the spending requirement at hand, you can often walk away with a nice pile of cash back or reward points as a new cardholder.

But the spending requirements to snag a sign-up bonus can be tough to meet. You might, for example, have to rack up $3,000 in charges within three months to snag your bonus. So it’s important to apply for a credit card with one of these bonuses at a time when you’re making extra purchases, such as if you’re booking a vacation or furnishing your home. If you don’t time your application just right, you might force yourself to spend extra to snag a bonus, thereby not really benefiting financially.

4. Have I compared different credit card offers?

As a general rule, it’s not a great idea to apply for multiple credit cards in short order. That’s because each time you apply for a new credit card, a hard inquiry is done on your credit report. Each individual inquiry along these lines could take your credit score down by five to 10 points, so while a single hard inquiry isn’t such a big deal, three or four within the same few months could cause more damage.

Since it’s ideal to space out your credit card applications, before you submit one, research different options to make sure you’re going after the best offer that’s available to you. You may, for example, be interested in a travel rewards credit card if you intend to take more flights in 2023. But in that case, you should look at different travel reward cards rather than jumping on the first appealing offer you see.

A new credit card could open the door to great rewards, a nice bonus, and a host of ongoing perks in the new year. But before you apply for one, think about whether the time is right and ensure you’re making the best financial choice.

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It could pay off if you’re sitting on holiday debt. 

The holidays are an expensive time of the year to begin with. But this year, a lot of people incurred extra costs due to inflation. And if you’re sitting on a pile of holiday debt right now, you’re not alone.

If you owe money on different credit cards, you could tackle those balances individually until they’re paid off in order of highest interest rate to lowest interest rate. Or, you could do a balance transfer in January and move them over to a single credit card. Here’s why that may — or may not — be a good choice.

The upside of doing a balance transfer

When you do a balance transfer, you trade in multiple credit card payments a month for a single payment. That could make your bills far more manageable and help you avoid a scenario where you’re late with payments not due to a lack of money, but due to forgetfulness.

Also, many balance transfer credit cards come with a 0% introductory interest rate. And that’s important, because what it allows you to do is avoid incurring extra interest charges while you work at whittling your debt down.

Of course, if you do a balance transfer, you’ll want to make a point not to add to your balance. But all told, it could be a source of savings and a means of making your life easier.

The downside of doing a balance transfer

A balance transfer offer might seem appealing. But if you don’t have a very good credit score, you may not qualify for one.

Also, there are fees associated with moving your different credit card balances onto a new card. You’ll need to see what those entail before doing a balance transfer. Often, they’ll range from 3% to 5% of the sum you’re transferring over. If you’re looking at the higher end of that range, your costs could add up.

Finally, while some balance transfer offers give you access to a 0% introductory rate on your new card, some don’t. So you may not manage to shave down your interest rate all that much. And also, those 0% interest rate periods are limited. If you don’t pay off your balance by the time yours ends, you could get stuck with a high interest rate on your debt.

Is a balance transfer right for you?

If you’re closing out 2023 with credit card debt, whether it’s from the holidays or from something else, then it could pay to look at a balance transfer. But that’s not your only option for consolidating debt. Another option to research is a personal loan.

With a personal loan, you’ll face some closing costs, but those might be less expensive than a balance transfer fee. And if you’re not getting a 0% introductory rate on a new credit card, you may be better off with a personal loan, since the rate on that loan might be more reasonable than that of another credit card.

All told, doing a balance transfer could help you pay off your debt more quickly, so it’s an option worth considering. But it may not be the only one you should contemplate in January.

Top credit card wipes out interest until 2024

If you have credit card debt, transferring it to this top balance transfer card secures you a 0% intro APR for up to 21 months! Plus, you’ll pay no annual fee. Those are just a few reasons why our experts rate this card as a top pick to help get control of your debt. Read our full review for free and apply in just 2 minutes.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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It could, but there’s probably a better way to get access to money. 

Back in mid-2020, when mortgage rates started plummeting to record lows, many homeowners rushed to refinance so they could lower their housing payments. But mortgage refinancing activity has slowed down a lot in 2022, and for good reason.

Since the start of the year, mortgage rates have risen sharply. And at this point, many homeowners are looking at higher rates by refinancing than what they’re paying on their mortgages now.

As such, it’s fair to assume that refinancing won’t make sense for a lot of homeowners in 2023 — at least during the early part of the year. But is a cash-out refinance a different story?

Should you plan on a cash-out refinance?

With a regular refinance, you swap your existing mortgage for a new one with the same balance. With a cash-out refinance, you borrow more than your existing home loan balance so you get access to a sum of cash you can spend as you please. So if, for example, you owe $200,000 on a mortgage, you might do a $250,000 cash-out refinance.

Now it’s pretty much never a good idea to do a cash-out refinance so you can plan a vacation or spend money on things that only give you temporary enjoyment. But it’s a much more reasonable thing to do a cash-out refinance so you can renovate your home or address key repairs.

To be clear, you can use proceeds from a cash-out refinance for any purpose. It doesn’t have to be home-related. And as long as you’re borrowing for the right reasons, a cash-out refinance could make sense simply because it may be among the more cost-effective options you’ll come across.

Right now, it’s not just mortgage rates that are higher than they’ve been in a long time. Rather, pretty much all consumer borrowing rates are up. So whether you take out an auto loan, a personal loan, or a home equity loan, you’re probably looking at spending more. The benefit of a cash-out refinance is that you may have more flexibility due to this being a secured loan — it’s backed by the clear equity you have in your home.

Another option to look at

One major downside of doing a cash-out refinance is that you may only need access to a smaller amount of cash, yet you’re forced to refinance your entire mortgage. So before you go that route, you may want to consider a home equity loan instead.

Say you need to borrow $50,000 for a home renovation project, and you owe $200,000 on your mortgage. Instead of potentially subjecting yourself to a higher-than-average interest rate on a $250,000 sum by doing a cash-out refinance, you could instead get a home equity loan for $50,000.

In fact, a cash-out refinance really only makes more sense than a home equity loan in early 2023 if you happen to have a high interest rate on your mortgage already. If not, then a home equity loan is probably your better choice by virtue of being less expensive overall.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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