JOE'S MONEY - Topic: - Credit Cards
March 14th, 2008 at 06:37 amCredit cards today come in all shapes and sizes: standard, gold, platinum, rewards, secured, fixed rate, variable rate, fees, no fees, extended warranty, photo ID, ..... And, if you can believe it, more are being created every day by marketing departments trying to capitalize on America's thirst for consumer spending, and the related debt.
There are so many choices for cards, how does an individual choose what is right for him? I'll make several recommendations, but all are predicated by the fact that there are no "problems" with your credit history or spending patterns. (I do not want to promote overspending, just because you can!).
My personal opinion is that a family should have three credit cards, that should cover "normal" spending needs, and a fourth if you have outstanding balances to take advantage of introductory rates. First I'll make the statement that you should never agree to pay any annual fees. There is so much competition in the credit card industry, that you will always be able to find a card issuer willing to waive fees. In fact, just by calling the toll-free customer service line, I have consistently gotten issuers to refund any fees charged to my account. Of course you may have to threaten to cancel your account, but that is easy to follow through on. I finally got tired of having to call to get fees waived, so I did cancel my card that "tried" to charge me a fee.
Card #1 Credit card to be used for making monthly purchases. This card is not to carry a balance on. It is only used to make purchases for convenience. By not having to write checks, or carry cash, you can save yourself time and money by only writing one check per month to pay for all household operating purchases. My recommendation: Discover Card - no annual fee, and refunds up to 1% of annual purchases in cash annually.
Card #2 No annual fee VISA or Mastercard to be used where Discover is not accepted. There are still some businesses and restaurants where they don't accept Discover. I always complain, use my VISA or Mastercard, and try not to use that establishment again, unless they start taking Discover. Card #2 is also not meant to carry a balance on.
Card #3 No annual fee, low interest rate card. This card is the one to be used for short-term financing and for an emergency fund. There is a glut of low introductory rate cards on the market. (See Card #4) Your emergency card will have lower rate than the average cards available. Presently cards with rates around 12% are easily available. Some are fixed and some are variable, but I am talking about cards that will stay at a reasonable rate.
Card #4 No annual fee, low "intro." rate for a period of 6-12 months. Rates of 6.4%, 7.9%, 8.9%, etc. have been offered by almost every Mastercard and VISA issuer. These low starting rate cards are good to use if you will pay off your balance before the end of the introductory period, or if you intend on taking advantage of another introductory offer to transfer the balance before the first one expires. If you get caught with an expiring intro.-rate when you don't have another to switch to, the increased rates can eat up a lot of your interest savings. "Churning" is the industry term for people who just keep transferring balances to new intro.-rate cards. I personally don't see anything wrong with taking advantage of this opportunity, but a word of caution: it is not for the faint of heart, and you have to keep on top of everything. Timing of applying for new cards, and paying off the old before the rate changes is a lot of work, worry, and takes dedication.
Affiliation and reward cards: My opinion is BEWARE. These cards promise free gifts, merchandise purchases, free travel miles, free gas, and even the Ford and GM cards allowing you to accumulate money towards your next car purchase. In general - the "savings" that these cards promise is rarely delivered. For example - the "Car" cards will allow you to accumulate up to $3,000 towards the purchase of a new car. Not bad, but the restrictions are many: limitations on what you can accumulate in a year, how long the credit will be available before expiring, annual fees, high interest if you can't pay your balance, and the big assumption that in three years, when you have accumulated the maximum allowed before expiring, that there is a car model that you would want to buy. My feelings are that I would use my GM card for the three years, then Ford would come out with a new model that I would "have to have" (or vice-versa!)
My "four-card" scheme is meant to take advantage of the optimal opportunities available. If you already have balances, bad credit, or other specific issues, my recommendations may not be available to you. The guidelines for usage however, is generic to any situation.
If you have any questions regarding credit cards, or have suggestions for topics that you would like covered, please post comments on the blog, or email to "Joe's Money" via email to batitude@verizon.net.
Originally written May 1995