Balance transfer credit cards: two caveats

Before you get too excited about that weight being lifted from your shoulders, you need to heed three warnings:

1. As with most credit, you can’t always get it if you really, really need it. Credit card companies aren’t crazy (mostly), and they won’t lend to you if they think you are already in financial trouble. The stronger your credit report, the better your chances of approval for the card you want.
2. Don’t see balance transfer credit cards as additional lines of credit. It’s a classic mistake to transfer a balance and then run up others on the cards you zeroed. Instead, use the vacation from interest payments to more quickly pay down as much debt as you can, including that on the new card.
3. Most of these cards charge a one-off fee (often 3 percent) on the amount you transfer. That’s usually added to your new balance, and it’s rarely enough to undermine the economics of the deal, but unless you choose one of the fee-free offers described below, you ought to build it into your calculations. Use one of IndexCreditCard.com’s credit card calculators to model your savings and plan how you’re going to pay down your balance.

Balance transfer credit cards without the balance transfer fee

Sometimes, credit card companies run special promotions during which they waive balance transfer fees. They’re not always available, but you should invariably check for them before you apply for one of these credit cards. Right now, there are at least two such offers, and both are time-limited.

Discover has signaled that its offer is likely to expire on Jan. 31, so don’t delay if you’re considering making an application. Here are some of the headline points for this offer, which is on the Discover More Card:

• No balance transfer fee, annual fee or rewards redemption fees.
• Introductory period of 12 months during which there’s a zero-percent APR on both balance transfers and purchases.
• Discover’s usual rewards program, with cash back that can be earned based on eligible purchase categories.

Of course, before you make any credit card application, you should comparison shop online. If you were to do so at the time of writing, you’d find that Chase is offering a similar deal on its Slate from Chase card. There are no balance transfer or annual fees, and the introductory 0-percent APR lasts for 12 months if you have excellent credit, or six months if you have average credit.

Again, this offer is flagged as being available only for a limited time. So if you’re looking for a holiday hangover cure, you’d better act now.

Credit card use “surges”

The Post’s piece cited support from two sources for its contention. First is — appropriately enough — First Data, a research company that tracks how consumers make payments. It found that, compared with the same period in 2010, credit card purchases increased by 7 percent in November, and then “surged” again in the first part of December. And it went on to quote Ed Ferrell, director of the Consumer Reports national research center:

If past behavior is any predictor, the closer you get to Dec. 25 the more likely you’re running into that store and buying whatever you can. Plastic really starts flying more.

The second source was an earlier study by Consumer Reports itself. This found that, although the number of consumers who said they were planning to use credit cards over the holiday season remained steady compared with last year, the amount they intended to charge to those cards had increased by 6 percent. On average, respondents thought they’d add $756 to their card balances this year.

Credit card debt remains an unknown

Of course, a large proportion of those using plastic are likely to pay down their balances in full when their next monthly statement falls due. But some won’t, and it’s the number of those that credit card companies and other industry observers will be watching carefully.

Stand by for close scrutiny of data from many private and public bodies as they report over the coming weeks, and especially of the Federal Reserve’s figures for total credit card debt, which are due to be released in early January for November’s balances, and early February for December’s.

Credit card debt and consumer confidence

Two questions many people are likely to ask themselves when they come to decide how much they should reduce their holiday card balances are:

1. How secure do I feel in my job?
2. How confident am I in my financial prospects?

The answers to both these may be more cheerful now than they have been recently. Everyone knows that the unemployment rate has at last begun to fall, and the optimism that comes with this was reflected in The Conference Board Consumer Confidence Index, which was published Dec. 27. Lynn Franco, director of the Board’s consumer research center, observed in a statement that day:

Looking ahead, consumers are more optimistic that business conditions, employment prospects, and their financial situations will continue to get better. While consumers are ending the year in a somewhat more upbeat mood, it is too soon to tell if this is a rebound from earlier declines or a sustainable shift in attitudes.

Credit card interest rates a factor

People who are considering carrying forward balances for the first time since the credit crunch should bear in mind one factor beyond their immediate prospects: the credit card interest rates they pay may be higher than they used to be. Right now, the IndexCreditCards.com rate monitor puts the average for all cards at 16.71 percent, while those for rewards credit cards average 17.58 percent.

It’s that higher rate that lies behind a piece of advice that’s oft-repeated here: charge to rewards credit cards only those purchases that you can clear at the end of the current billing cycle. Everything else should go on low interest credit cards.

“How much interest will I pay?”

Of course, even relatively high rates are unlikely to prove a serious problem for those thinking of paying down their holiday spending over two or three months. But anyone planning to carry credit card debt over the long term should probably take the costs of doing so seriously. So, if you’re in that position, why not check out this site’s credit card calculators, which can answer a range of questions, including “How much interest will I pay?“

Credit card giving boosted by Capital One

‘Tis the season for charitable giving, so first up is Capital One, which recently reminded its customers of its donations website, www.capitalone.com/give. Generally, credit card companies deduct interchange fees from charitable donations, which means that up to 5 percent of any gift made using plastic goes into issuers’ coffers. But for those using this site, Capital One waives its fees, and 100 percent of your donation reaches the good cause of your choice.

You can search the site’s 1.2 million-strong database for the charity of your choice by name, type of cause or zip code, and you can also redeem points from Capital One rewards cards to make your donation. As Katya Andresen, the chief strategy officer at Network for Good, remarked in a press release:

While offline giving has declined through the economic downturn, online giving is on the rise and people are looking for easy, convenient and cost-effective ways to be generous. The Giving Site is a great tool for consumers and we are thrilled that Capital One is getting extra money to charities at a time when every penny counts.

Too busy to shop? American Express takes it on for you

If you’re lucky enough to have an American Express Platinum Card, your holiday shopping just got a whole lot easier. That’s because the concierge service that comes with that particular card is offering to do all the legwork for you.

All you have to do is send a list of the gifts you require, and the concierge team will research your options, find you the best price, buy what you want on your card, and then make sure the items are delivered in time for Christmas.

Store credit cards in decline

The amount people spent on “private-label” (store and similarly branded) credit cards plummeted by 14.4 percent to $183 billion in 2010, according to a study conducted by Packaged Facts and reported in Marketing Daily on Nov. 30.

Meanwhile the “receivables” (the total credit card debt outstanding) on private-label plastic fell even further, down 18 percent during last year. Much of this may be down to credit card companies “charging off” debt (writing it off their books and passing it on to collection agencies), though the dollar volume spent on this sort of card was also down.

This may well be a good thing. Although private-label plastic often comes with tempting discounts and exclusive offers, mainstream credit card interest rates tend to be lower than those for store cards, and the latter are frequently an expensive form of credit card debt.

It’s generally better to use low interest credit cards — rather than store cards or rewards credit cards — for purchases that you won’t be paying down quickly.

Record-breaking online holiday shopping

ComScore, a research company specializing in the digital world, is tracking online holiday spending. And 2011 is proving to be a bumper year. Between Nov. 1 and Dec. 4, online spending reached $19.57 billion, 15 percent up on the same period in 2010. On Cyber Monday (Nov. 28) alone, it reached over $1.25 billion, 22 percent more than that day last year.

This is almost certainly good news for credit card companies. More and more people are recognizing the superior statutory protections offered to consumers by credit cards — as opposed to debit, gift and prepaid cards — and these can be especially valuable online. So the more people shop on the web, the more the turnover of card issuers is likely to rise.

Credit card companies and sign-up bonuses

As you probably know by now, credit card companies are currently locked in a desperate battle to win market share. This largely explains the recent rush of enhancements to rewards credit cards. And it may also be behind sign-up bonuses, which card issuers pay on some products simply to say thank you for becoming a new customer and for spending a certain amount on your new plastic.

Right now, at least two cash back credit cards are offering a whopping $200 in sign-up bonuses, and that’s in addition to the usual rewards (up to 5 percent cash back) you would normally receive. But, before we explore those cards, here are two caveats:

1. You’re likely to need excellent credit in order to qualify for either, so don’t bother reading further if you’ve had financial problems recently. It’ll probably only make you feel worse.
2. Deals like these are seductive. Don’t apply if you already have significant credit card debt, or if you’re one of those people who can’t resist temptation when it comes to spending.

Cash back credit cards from Chase

The first of today’s cash back credit cards to offer a $200 sign-up bonus is the Chase Freedom® Visa card. To get the bonus, you have to spend at least $500 within the first three months that you have it, which may not be a problem, given the time of year.

Chase pays 5-percent cash back but only for purchases (capped at $1,500 a quarter) made within revolving categories that change every three months. So, for example, during the current (October-December) quarter, that 5 percent is paid on purchases made in restaurants, department stores and movie theaters, as well as on charitable donations. Generally speaking, you get 1 percent on everything else, though you can get up to 10 percent if you shop at certain retailers through Chase’s online portal.

There’s no annual fee on this card, but interest rates, which are variable, are currently 15.99 percent to 22.99 percent annual percentage rate (APR), depending on your creditworthiness. That isn’t uncompetitive, but it’s hardly generous either. It might be best to charge to this one only purchases that you know you can pay down quickly, and to use low interest credit cards for everything else.

Cash back credit cards from Citi

The second card (only alphabetically) is the Citi® Dividend World MasterCard®. The sign-up bonus deal is precisely the same as Chase’s: $200 back if you spend $500 during the first three months after your account is opened.

And its rewards are very similar too. Its bonus categories also pay 5 percent (1 percent on everything else), and change each quarter. Citi’s choice of categories for the current quarter seems even more seasonally appropriate than Chase’s:

1. Department stores
2. Clothing stores
3. Electronics stores
4. Toy stores

Citi caps the rewards you can earn in any one calendar year at $300, but makes an exception for purchases made through the Citi Bonus Cash Center, where they’re unlimited. Like the Chase card, Citi’s card has no annual fee, and, interestingly enough, both Chase and Citi charge precisely the same credit card rates on these two near-identical products. So the same suggestion applies about not using it for purchases that you can’t pay down quickly.

The fact these two credit cards are so similar may relieve you of one holiday headache: choosing which to apply for. Just toss a coin. Heads you win, tails you win.

This content is not provided or commissioned by any company mentioned in this post. Opinions expressed here are author’s alone and have not been reviewed, approved or otherwise endorsed by any such company. This site is compensated by companies referenced in the blog posts through advertising, affiliate programs or otherwise.

Rewards credit cards bad?

That’s better. Anyway, the overall thrust of McNeal’s blog was that she was (on balance and with caveats) against rewards credit cards in general and travel rewards cards in particular. And she gave three reasons why:

1. Having had so much credit card debt before, she was determined to avoid it again. And using plastic for most purchases, rather than just exceptional ones as she does now, would mean that she’d have to micro-manage her cards so as to be sure she retained control.
2. Most travel rewards cards come with fees, and McNeal objects to those “on principle.”
3. Credit card interest rates on rewards plastic tend to be higher than those on non-rewards cards.

All of those are good points. If you’re going to use your rewards credit cards for most of your purchases, you really need to keep on top of managing your payments and expenditure. Everyone hates annual fees. And, on average, credit card interest rates are higher for rewards cards than others.

Rewards credit cards good?

However, only some people need to be concerned about McNeal’s points. Many have no difficulty in successfully managing their spending and payments. Quite a few are happy to pay a fee because they find the rewards they earn significantly outweigh it. And, as this blog regularly advises, rewards cards should ideally be used only for those transactions that are going to be cleared at the end of the then-current billing cycle; anything else should be charged to low interest credit cards.

You have to admire McNeal, and her counsel is spot-on for those, like her, who have a tendency to get carried away with their plastic. But, luckily, most of us aren’t in that position. For us, following such advice is about as sensible as asking a recovering alcoholic to recommend a good wine.

Finding the best travel credit card

Earlier this month, Rachel Koning Beals wrote a good piece on travel rewards cards for Business Insider. Beals is clearly an informed and insightful writer, not least because she referenced IndexCreditCards.com in her article. But enough mutual backscratching. The important thing is that she mentioned a key (perhaps the key) rule abut selecting travel rewards cards:

But long before consumers pack their flip-flops and board the dog, they should review the terms, fees, and interest rates attached to travel credit cards (and all cards with rewards programs), which can vary greatly.

Recently, this news blog reported that, despite growing customer satisfaction with card rewards in general, travel rewards continued to cause resentment. In particular many consumers reported problems with blackout dates and difficulties making last-minute bookings.

So take care when choosing your rewards cards. Find one that suits your lifestyle by comparing the best credit card deals, and then read the small print. It’s worth the effort in the long run.

Low interest credit cards versus rewards credit cards

Wow! That’s a colossal and genuinely shocking figure. And it suggests that huge numbers of victims may be forced to fall back on their plastic just to restore their lives to something approaching normalcy.

If you’re one of them, you’re likely to be pretty short on silver linings at the moment, and might be attracted by even the minor one offered by rewards credit cards. While you’re spending all that money, you may think, you might just as well get some cash back, travel miles, points or whatever.

Good idea. But it may not be the smartest move for all your purchases. For many of those, you should probably be pulling your low interest credit cards from your wallet instead.

Credit card rates, rewards credit cards and credit card calculators

That’s because, on average, interest rates are higher for rewards credit cards than those for ordinary ones. Indeed, at the time of writing, IndexCreditCard.com’s credit card rates monitor says that the average annual percentage rate (APR) for consumer non-rewards cards is 14.72 percent, while that for consumer rewards cards is 17.30 percent.

You’d need a spectacularly generous rewards card for it to make sense for you to charge items to it that you know you won’t be able to pay down for a long time. Generally speaking, the rule is that it’s good to use rewards credit cards for purchases that you know you can clear quickly, and low interest credit cards for those that are going to take you longer.

You can use credit card calculators to see how long it should take you–and how much it should cost you–to pay down balances at your own cards’ different interest rates. Then you can work out what your personal strategy should be.

Balance transfer credit cards

If your credit’s good and you’re having to load your cards a lot post-Irene, then you might want to consider applying for a balance transfer credit card. There are two reasons why this could be a good idea:

1. A number of these–mostly from Citi–offer zero percent APR on transferred balances for 21 months. Others make a similar offer for 15 months. That could provide you with just the breather that you need to get over the hurricane.
2. Your credit score could suffer if the balance on any of your cards is higher than 30 percent of its credit limit. So even if you can manage paying down your credit card debt easily, you could be better off spreading the load across more plastic.

Credit card companies human!

One tiny positive revelation that emerged in the aftermath of Irene is that credit card companies are human. That’s not necessarily in the sense that the U.S. Supreme Court thinks, namely that corporations are people. No, it’s in the sense that they’re run by real-life, breathing and occasionally sentient human beings. Many of them announced that those affected by the hurricane could see their late payment and/or other penalty fees waived, though only for a strictly limited time. Awww. Ain’t they sweet?

Credit card rewards are paid for

Most credit card companies view their rewards programs as essential marketing tools, and fund them from all their different revenue streams. However, key among those streams are “interchange fees” (also known as “swipe fees”, see Credit card companies likely winners in Senate battle this week), and some argue that such fees are effectively a tax on purchases.

They are the cut of the transaction value paid by merchants to banks every time a card is swiped. But few merchants are likely to cover that cost out of profits, and, instead, most raise prices. Those higher prices are generally paid by everyone: rich and poor, cardholders and non-cardholders.

Credit card rates higher on rewards cards

Of course, another important source of income for card issuers is the interest they charge on those balances that are carried forward. And credit card rates tend to be higher on cards with rewards programs. Indeed, at the time of writing, the Index Credit Cards rates monitor says that the average rate on a consumer non-rewards card is 15.09 percent annual percentage rate (APR), while that on a consumer rewards card is 17.48 percent.

Regular readers of this blog won’t need a picture to be drawn for them: use low-interest credit cards for purchases that can’t be paid in full when your next statement falls due. Only use rewards cards for transactions that you plan to clear at the end of the current billing cycle.

Credit card rewards are great… and (mostly) getting better

But all this is quibbling. The bottom line is that most credit card rewards programs are already good, and getting better. Last Thursday, The Richmond Times-Dispatch carried a story that identified a couple of things to look out for:

1. Sign-up incentives–mostly available to those with near-perfect credit, but some of today’s deals are truly remarkable.
2. Continuing rewards–these, too, are notably generous at the moment. One tip: if you have a Discover card, be sure to sign up for double cash back on the first $500 of purchases during your birthday month. Another tip: shop around for the best deals; they’re worth seeking out.

If you don’t have time for that search, CardRatings.com is currently recommending particularly highly the following rewards cards:

• Cash back: Chase Freedom® Visa $150 Bonus Cash Back
• Airline miles/rewards: Capital One® VentureOne (SM) Rewards Credit Card
• Gas rebate: Chase Freedom® Visa $150 bonus cash back

Credit card terms change

The day before that story appeared in The Richmond Times-Dispatch, The New York Times published a reminder of the importance of keeping an eye on your credit card terms. These change from time to time, and occasionally a rewards program that started off as being unusually generous may be watered down. So, if you want to be sure of always getting the best from the plastic in your wallet, you need to find time to compare deals regularly.

Two of this week’s credit card news blogs have explored the world of plastic using the excellent comScore® Online Credit Card Report, which was published on Apr. 19. Today, we wind up that exploration with a look at rewards programs.

Credit card rewards important

People are pretty smart when it comes to choosing their credit cards. Or, at least, they give pretty smart answers when researchers ask them to list the criteria they use to pick their plastic.

When comScore asked a sample of consumers who already had at least one card to rank card features, their top-three responses were:

1. Low credit card rates–40 percent


2. No annual fee–28 percent


3. Rewards or points–13 percent

Low credit card rates often more important

So far, so good. But a more detailed analysis of comScore’s data reveals a less smart attitude on the part of many consumers. A whopping 71 percent of people who keep a balance on their credit cards also have a rewards program on their primary card.

Suddenly, that whole “something for nothing” view of rewards looks less savvy. Today, according to this website’s credit card rates monitor, the average annual percentage rate (APR) charged on balances on consumer rewards cards is 17.48 percent. The same APR for consumer non-rewards cards is 15.27 percent.

Now, it may be possible for those who carry forward only a small amount of credit card debt each month to come out ahead if they take full advantage of a particularly generous rewards program. Indeed, if you have the Simmons First Visa Platinum Travel Rewards card (and you’re only likely to if your credit report is excellent), you could be receiving travel rewards, and still be paying only 9.25 percent APR on balances.

However, generally speaking, many consumers with continuing credit card debt are better off switching to one of the many low interest credit cards available. Use this site’s credit card calculators to see whether you should switch or stay.

Credit card rewards: the different flavors

People who say that credit card rewards are important to them are very clear about the sorts of rewards they like best. When comScore asked them to rank (on a 1-6 scale) the most important types, they said:

1. Cash back–57 percent


2. Merchant rewards–13 percent


3. Flexible points–13 percent


4. Airlines–10 percent


5. Gas–5 percent


6. Charitable donations–3 percent

Household income plays a big part in these preferences. Cash back remains by far the most popular choice across all levels, but those with higher incomes are significantly more likely to value airlines rewards than the less well-off. Only 6 percent of those with household incomes in the $40,000-$74,000 range favor these, compared with 15 percent of those who earn $75,000 or more.

Intriguingly, it is those in the middle income range ($40,000-$74,000) who are stingiest over charitable donations. Only 1 percent of respondents in this group ranked the charity category highly, compared with 3 percent of those with higher incomes. Amazingly, a full 5 percent of those earning less than $40,000 prioritized donations. Make of that what you will.

Credit card applications: the selection criteria

In December 2010, comScore conducted a survey of almost 2,000 Americans who use the Internet and have at least one credit card. Purists should note that not all credit card users are also Internet users, so the results may not reflect the general population entirely accurately. However, given the near ubiquity of online usage in this country, any skewing of outcomes is likely to be tiny.

Anyway, the survey asked those respondents who had shopped for a new credit card in the previous 12 months about the factors that were most important in choosing the product they ultimately applied for. The results were:

1. Low annual percentage rate (APR)/interest rate–38 percent
2. No annual fee–25 percent
3. Rewards program–16 percent
4. Introductory offer for new account–13 percent
5. Low APR for balance transfers–8 percent

Researchers then asked all respondents (not just those who’d shopped for a new card over the previous year) to score the importance to them of certain credit card features. The resulting ranking was:          

1. Low APR/interest rates–40 percent
2. No annual fee–28 percent
3. Rewards or points–13 percent
4. Card accepted as most merchants–8 percent
5. High credit limit–5 percent
6. Reputation of the issuer–3 percent
7. Customer service–2 percent
8. Low APR for balance transfers–1 percent

People who write about credit cards come across a whole lot of stories about consumers who’ve made dumb choices. And this may lead them (your blogger included) to believe that people in general pick their plastic using poor criteria. But the comScore research suggests that this belief may be mistaken, or, at least, exaggerated.

The study breaks down results between people who perceive their credit scores to be excellent or good and those who think they’re fair or poor. And, to a large extent, both groups value selection criteria in ways that suit their needs.

For example, those with excellent/good credit scores worry less (34 percent) about having a low APR than those with fair or poor credit reports (53 percent). And that makes perfect sense. Those in the first category are less likely to carry forward balances than those in the second. That means that they should be less concerned about credit card rates; they’re less likely ever to have to pay any interest.

Credit card rewards

The same applies to credit card rewards or points. Those who believe they have excellent or good credit rank these higher (17 percent) than those who identify themselves as having fair or poor scores (6 percent). And, again, that suggests an informed and self-interested awareness. APRs tend to be higher for plastic with rewards programs, and those who are likely to carry forward balances frequently are often better off prioritizing low credit card rates. Those who never pay any interest should often seek out the most generous rewards program.

Credit cards & lifestyle

The trick to choosing a new credit card is first to sit down and make a realistic appraisal of how you’re likely to use the product. If you’re struggling to cope under the burden of high credit card rates on significant debt, then you should prioritize finding great deals on balance transfer credit cards. If you never carry forward balances, focus on rewards. If you frequently carry forward significant balances, look for low interest credit cards.

This isn’t rocket science, and the comScore study suggests that there’s a good chance you’re already making intelligent choices–and that’s especially likely to be true given that you’re an Index Credit Cards visitor. However, another part of the study could be read as meaning that most consumers don’t invest enough time in carefully comparing all the available offers. So make sure you’re not one of them.

Tomorrow, this blog will dig further into the comScore research to find more useful information.

Why on earth would any bank deter debit card use? Simple. The Federal Reserve is drafting regulations to lower “swipe fees” (the cut of the transaction value that merchants have to pay every time a card is swiped), and the financial services industry is in panic as it sees a key source of revenue heading for the exit. Chase alone could see income from swipe fees drop $1 billion a year if the Fed moves forward.

Credit card use set for resurgence?

When Congress passed the Dodd-Frank Act, requiring the Fed to act on swipe fees (they’re also called “interchange fees”), it chose to regulate only debit cards. So now the banks are thinking of steering customers away from what’s about to become a low-profit product, and towards one that still attracts maximum swipe fees – credit cards.

Dedicated readers (Hi, Mom), may not be surprised to learn that around here that’s regarded as good news. Back in December, Index Credit Cards published a column (7 ways in which credit cards beat debit cards) that pointed out credit cards are better than debit cards. Of course, credit cards can be toxic for those who can’t manage them well, but they’re excellent for the self-disciplined consumer.

Credit card applications now?

If you’re about to increase credit card use, now would be an excellent time to make sure you have the right plastic in your wallet. And, if you find you haven’t the appropriate credit cards, don’t hesitate to make a credit card application right away.

When choosing a new card, you have to make a realistic appraisal of how you’re likely to use the product. Only then can you decide what’s most important. For example, if you pay down your balance in full every month, then ignore credit card rates; you’ll never pay interest anyway. If, on the other hand, you always or sometimes carry balances, then you need to explore low interest credit cards.

You also have to be realistic about your likelihood of qualifying for a particular card. Generally speaking, the very best deals are available only to those with stellar credit scores. But you may still get approved for a first-class mainstream card even if your credit score doesn’t currently make you vertiginous.

Best cash-back low interest credit cards?

If your credit score is excellent, then you might consider the True Earnings Card from Costco and American Express, which CBS MoneyWatch describes as among the industry’s top cash-back credit cards. It has no annual fee, your Costco membership is paid and it offers generous rewards, especially on gas and dining out.

Other highly recommended products include the Discover More Card – $100 Cashback Bonus, and the Citi Platinum Select MasterCard.