1. Cancel those dangerous rewards cards - the cards where you earn points for every dollar that you charge. On the surface, the points give you free airline miles, cash back, or discounts on catalog merchandise. But why would you think that a bank offers anything truly free? You're paying for your own rewards, with the interest you're charged on the balances that you carry forward every month.
What's more, rewards cards tempt you to charge more than would otherwise be the case. A new study by the Federal Reserve Bank of Chicago found that people with cash-back cards spend more, and build up more debt, than people with ordinary cards. Their debts grew faster than their spending, suggesting that they reduced their monthly payments. That would have added even more to their interest costs.
Rewards cards make sense only if they charge no annual fee and you pay every monthly bill in full. Only then are your airline miles truly free.
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