April Discussion Topic: All About Credit Cards
We’ve reached a point in society where owning a credit card is extremely important. Cash is far from outdated, but most large transactions must be made with either credit cards or debits from bank accounts. Credit card usage is often advantageous to debit cards because you can challenge a charge which is made in error. If you sense a mistake is made on a debit card transaction, your cash is taken away first, and then you work with your bank to get it back. It should be clear that with the increasing necessity for credit cards comes a major opportunity for profit in the credit card and banking industries. However, that opportunity for profit spurs a certain level of competition which benefits the consumer. Let’s discuss how you can benefit from such competition.
You probably notice every few weeks that you get a solicitation for a new credit card in the mail. While this aggressive marketing can be annoying, once in a while you should embrace one of these offers. The increase in competition has made the offers pretty sweet. I recently accepted an offer for the Chase Rewards card. I called to confirm that no strings were attached to the 0% APR for the first 12 months with free balance transfers. That’s a good deal! If you switched from card to card every 12 months using this offer you could avoid paying interest for several years. I wouldn’t recommend spending the time or energy on such a task, but getting a fresh, new card and making on time payments will reduce the amount of money you are spending on interest payments.
Here is my current list of the best credit card offers:
Best Rewards Card: Citibank Diamond Preferred Card
Best Balance Transfer Card: Chase Cash Plus Rewards Blink Card (free balance transfers at 0% APR)
Best Airline Miles Card: The Miles Card from Discover
Best Card Bad Credit: First Premier Bank Gold Card
Beware of: Providian Credit Cards
If you happen to have a credit card you love that gives you a low interest rate (should be 12-15% if you make your monthly payments on time), call them up and ask if they will reduce your annual percentage rate (APR). If they believe you are going to switch cards, they’ll often lower your rate. If they don’t, you might just want to switch cards.
You should have about two credit cards. With two cards you’ll always have a card that is accepted where you’re making purchases. The most popular credit card issuers are Visa, Mastercard, and American Express. If you have two of these three, you’re covered. Having more than two or three cards will create problems regarding monitoring your balances, tracking fees and penalties, and keeping up to date with changing terms within the cards.
You shouldn’t have specialty cards unless you really, really use them. There’s no benefit to having retail cards (such as Macy’s) and specialty cards like a Jetblue card. These are gimicks which offer you a small up-front benefit (10% off at Macy’s) and come back to bite you with unusually high interest rates.
The best way to handle your credit cards is to pay off more than the minimum every month. This will help you establish a better credit score and increase your credit line. Companies such as Equifax, Experian, and Transunion track your spending habits and file you as a “credit risk” if you only pay the minimums every month. At the same time, these companies don’t like customers who pay in full, because they don’t make money off you. The highest credit line will be extended to a person who leaves a small balance some months, pays it off others, but is never late on a payment.
Questions about your credit card or the industry in general? Send me an e-mail. To read more articles on financial planning, please continue on the weblog.
Russell Bailyn
rbailyn@gmail.com
