Card Fish

And The Tuna Says (in response to "A Good Offer?")

2008-03-14T23:19:00.007-04:00

Dear GridMaster,

Master of the Excel spreadsheet, manipulator of numbers - You are wise and there is no need to be confused. My answer, as usual, is the same...

DO THE MATH!

To determine whether the PenFed Credit Union Rewards Card makes sense for you, there are two calculations you need to make. First, you must calculate your “earn rate”. Then, you must calculate your “burn rate”.

Your earn rate is easy – look at average % of money you spend in each of the categories (that’s ca-TE-go-ries to you and me), and calculate your weighted “earn rate”. To give you an example, I used my own situation over the past 3 months.

Here’s how it breaks down…

If I were to have a card with PedFed Credit Union, my earn rate would have looked like this over the past three months…

Pen Fed	Value	% of spend
supermarket	2.00%	18%
Gas	5.00%	10%
All other	1.25%	72%
Average	1.76%	100%

You can see that since I spent 18% of my purchases on groceries (which give 2% back), 10% of my purchases on gas (which give 5% back) and 72% on everything else (which gives 1.25% back), given my combination of spending categories over the last three months, I would have averaged 1.76% earn rate (i.e. 1.76% of my purchases are given back to me in points).

Contrast that to my current hotel rewards card…

Hotel rewards	Value	% of spend
supermarket	1.00%	18%
gas	1.00%	10%
hotel	5.00%	30%
all other	1.00%	42%
Average	2.20%	100%

With my hotel rewards, card, assuming the same % of spend in each category as above, with the separation of the 5% back on my hotel purchases, I end up averaging a 2.2% earn rate – a full 125% better than what I would have received if I had a card with PenFed. So, in other words, for me, the hotel rewards card I have is the better card strictly because of my lifestyle. But that’s me. Compare the PenFed card against a typical rewards card like Bank of America’s WorldPoints which offers 1 point per $ spend on everything, and you’ve got one stellar program – a full 176% better!

Now, I had to do some research on the redemptions side of the equation (i.e. the “burn rate”) and what I found is that the PenFed card appears to be rather competitive in terms of redemptions. For example, I can redeen 25,000 points to get a free airplane ticket in the contiguous 48 states – this is pretty typical of most card programs. Similarly, I could get a top-notch hotel room for less than 35,000 – which appears to be on-par with my own program. Merchandise, as with most other programs, translates to a poor redemption value. For example a $900 dishwasher can be had for 140,000 points - a pathetic $0.0064 per point exchange rate (remember you should be aiming for at least $0.01 per point!)

So, my dear friend – since you’re the master of the grid, you should be pretty good at finding the best card for yourself. It’s easy. Follow my lead above, and you’ll be able to determine what makes the most sense for you. If you’re not doing a lot of one particular thing, like staying in hotels or flying on major carriers, you may just very well benefit from a card like PenFed’s because it offers a great average earn rate. I appreciate your questions, and I welcome the opportunity to help. All you readers out there, just send us a note by way of comment on cardfish.blogspot.com and we can address your questions.

Happy Credit Card Shopping,

CardTuna

A Good Offer? And the Tuna Says...

2008-03-12T20:29:00.004-04:00

Oh great Card Tuna, swami of credit cards. I have a dilemma and don't know what to do, can you help me?

Today, I received a mailing from Pentagon Federal Credit Union. Inside, it had a great offer for credit card. At least I thought so. But I'm so confused about credit card rewards, that I'm not sure what to do.

So here's what they're offering me, oh great tuna, and I ask you what should I do?

It's a Visa platinum cash rewards credit card, which has historically given you 5% cash back for gas paid at the pump. It's also had 1.25% cashback for all other purchases. And those cashback bonuses are paid on a monthly basis to PenFed members. The new twist on the offer is that it now includes 2% cashback on supermarket purchases. Again, awards are paid monthly.

The interest-rate offers sound pretty good as well. Balance transfers get a 5.99% APR for the life of the transfer. The current interest rate for the credit card is a 13.99% APR. While I know that's not the greatest rate, since I pay my balance in full each and every month -- as you preach, oh great tuna -- I'm not worried too much about that rate.

So, what do you think? Deal, or no deal?

Heck no to HELOC cards

2008-03-07T17:22:00.004-05:00

Have you somehow been able to build up some of that nasty equity in your home through hard work, thrift and paying your bills on time? Also happen to have a HELOC (home equity line of credit) on your home to allow you to tap the equity for emergency purposes, college loans or something similarly worthwhile?

Leave it to the credit card industry to figure out a way to add plastic to that unholy (for them) situation. According to CardTrack, there's an interesting credit product that's now available that ties a credit card to your HELOC. The "good" folks at Harris bank have made a product available that lets you use a credit card to tap into your HELOC.

That's right. Liquidate your equity with lattes. Grind your net worth as you gas up. Destroy as you dine. You get the drift.

Let's be clear here. If you tap your home equity in today's market, i.e. declining home values, EXCEPT IN VERY DIRE CIRCUMSTANCES, you need to have your head examined.

Consider this--what happens if you tap the HELOC you set up a couple of years ago when your home was worth $10 or $20K more than it is now. Then something happens like, oh, losing your job? Suddenly, you need to get rid of the house and downsize. (Because you'll do that instead of living off credit cards, right dear reader?)

Oops. You're now upside down and bankrupt before you know it.

Think maxing out your HELOC is a good idea? Just remember this--if the credit card issuers thought of it, somebody's getting the shaft. Oh, and it ain't them.

The Donator's Fallacy

2008-03-06T21:36:00.003-05:00

Many of you altruistic, do-gooder types have found that you can make pain-free donations to your favorite charities such as your alma maters, animal rights groups, etc. just by enrolling in their credit card. Typically 1% of your purchases are then donated to your charity, and you never feel the pinch. It’s a brilliant and easy way to feel good about yourself and to give something back. But I have just one question for you…

ARE YOU AN IDIOT??

So, your parents spent thousands for you to get a great education at a top-notch university. Then you pay them back by showing them how stupid you can be. Why would you a) allow a multi-billion dollar corporation such as your bank get the tax deduction on YOUR money b) why would you donate less than you actually could? Or, in this materialist society of ours c) why would you forfeit the opportunity to get something for yourself (via credit card rewards)?

Let me illustrate this logic by way of a simple example…

Simon, a University of Higher Learning graduate, receives an offer in the mail for the UHL Rewards Credit Card. He learns that 1% of his purchases on the card will be donated to UHL. This makes Simon feel warm and fuzzy. He gets the card. He spends $25,000 on the card in the first year.

Simon’s bank turns around and donates $250 to UHL. The bank gets the tax deduction. Simon gets a notice that the donation was made. Simon feels warm and fuzzy.

Simon then bumps into CardTuna, I splash some salt water into his face and I force him to think about things. I point out to Simon that had he donated $250 of his own cash to UHL, he would have been able to take a deduction on the donation of about $75 (given his tax bracket). That means Simon would have really only been out of pocket only $175 on the $250 donation OR it means he could have actually donated $357 if he chose to be out of pocket $250 after his tax deduction. So, I force Simon to see that a) either HE or his alma mater are getting screwed and b) the big corporation wins.

I then rush Simon over to the nearest cross-cut shredder so he can chop his UHLRewards credit card to pieces. I advise Simon to apply for one of many credit cards that offer 1% cash back on purchases. He complies. In the next year, he takes the 1% cash back, donates it to UHL and pockets the $75 tax deduction. Now, Simon concludes that he wins, UHL gets the same benefit it would have with his now-destroyed UHLRewards card. Simon still feels warm and fuzzy, but he also feels like his UHL education was actually worth something.

Rock on Simon. Rock on.

CardTuna

What the $&^% is in the Water Cooler at Bank of America?

2008-02-12T23:51:00.010-05:00

Okay – these guys are nuts. If you have a Bank of America credit card, you might have been unlucky enough to recently receive a mailing that tells you they’re about to raise your interest rate by an exorbitant amount (some cases more than double!)

First off, they’re a FORMER business partner of mine, and I think I can say they’re nuts especially since my identity remains rather anonymous. I could tell you stories, but I won’t. Instead, I’ll tell you if you got one of these mailings, don’t worry – it’s not because of anything you did or didn’t do (like not pay a bill). It's based on some secretive level of targeting that no one outside of the corporate walls understands.

They did this ballsy move because they told you they could, and you gave them your permission by way of accepting the terms and conditions that you unknowingly agreed to when you decided not to read your terms and conditions. The language you missed went something like this:

As required by law, rates, fees, and other costs of this credit card offer are disclosed here. All account terms are governed by the Credit Card Agreement. Account and Agreement terms are not guaranteed for any period of time; all terms, including the APRs and fees, may change in accordance with the Agreement and applicable law. We may change them based on information in your credit report, market conditions, business strategies, or for any reason.

This paragraph can be found at the very top of the terms and conditions, in itsy-bitsy type right above the interest rate section. The first part that bothers me is the part that says terms are not guaranteed for any period of time. But also note the last sentence, “We may change them (i.e APRs) based on information in your credit report, market conditions, business strategies, or for any reason“. Does anyone else find the last four words as haunting as I do? or for ANY reason? I can imagine the conference room at Bank of America now…

“Well, the kids have been hitting the lollipops a little too hard at our branches and it’s been hurting our bottom line. Jack, what do you think we should do about it?” “Well, Jim, why don’t we just double all of our cardholders interest rates? That should just about cover it!”

In all seriousness, there’s a lot of speculation about why they pulled such a stunt – they’ve got to level out their reserves after the sub-prime mess, they’re fattening up for their purchase of Countrywide, they’re trying to dump their dead-weight cardholders they inherited when they purchased MBNA (Mothers Brothers Newphews Aunts – a story for another day).

Whatever the reason, Bank of America is not only going to lose a lot of credibility in the marketplace. They’re likely to lose their shirts too when consumers catch on and plan a mass exodus when some other card company positions themselves as the savior by coming out with some offer that implies “Did Bank of America take advantage of you like a cheap whore at a bachelor party? How dare they. We’ll never do that to you. Sign on the dotted line and we’ll guarantee your low fixed rate for life”.

If you’re a victim of Bank of America’s seedy practices, I encourage you to visit our friends at Indexcreditcards.com where you can choose between 1,217 different cards to suit your needs. Choose carefully though – 26 are listed as Bank of America cards, and there’s a bunch more that are former MBNA cards. The good news is, there’s plenty more than one fish in the Cardfish sea. Finding what you need is like, well, shooting fish in a barrel.

CardTuna

To Fee Or Not To Fee? That Is The Question.

2008-02-11T01:55:00.000-05:00

I recently read that about 70% of all credit cards do not carry annual fees. Whether or not that’s true, I have no idea. But let’s assume it is. If that’s the case, it’s quite a departure from the days of old when just about every credit card out there carried an annual fee. I imagine that savvy marketers gained a competitive edge by being able to advertise “No Annual Fee”, underwriters found new ways to make up for the quick buck and eventually, I suppose, the laws of Malcom Gladwell’s “The Tipping Point” took charge and most banks followed suit.

But what about the remaining 30%? In a world where annual fees appear to be optional, why would anyone in their right mind stick with a card that continues to stick it to them right back? Well, for many, they sadly just don’t know any better and probably haven’t done their shopping. But for others, the annual fee can be a friend, bringing lower rates, better rewards and more earning power.

You’d think that a guy who knows a thing or two about credit cards wouldn’t use one that carries an annual fee. But, guess what my dear school of fish - I do. And I’m proud of it - because it makes financial sense. Here’s why:

As you know from previous posts, my card of choice belongs to a big hotel chain and a major bank. That big hotel chain has two credit card products. One that earns users 3 points per dollar with every stay at said hotel chain’s properties. This “basic” card carries no annual fee. The other (the one I have) carries an annual fee of $65. For that $65, I earn all this:

5 points per dollar with every stay at the hotel chain’s properties instead of 3
A certificate for a “free” night’s stay upon every account anniversary
Double points on airfare, dining and rental car purchases
A 15-night credit towards their Gold member status (which requires 50 nights stay per year, so in other words, I only need to stay 35 nights to reach Gold status).

Of course, the $65 annual fee is automatically worth it since it gives me a free night’s stay. But even if it didn’t it would still be worth it to me because I’m a heavy user. From my hotel stays alone I rack up about $6,000 in charges a year with the hotel chain. On the basic card, that would earn me 18,000 points. But on the premium fee-based card, it earns me 30,000 points. The difference of 12,000 points is enough for one night’s stay at one of their mid-tier locations – the equivalent of about $150. Plus with my airfare, dining and car rental bonuses, I’m well on my way to a second free night. So, you can see, I can easily justify paying the annual fee.

But enough about me. What about the average Joe who revolves a balance and is paying 14.99% on a card with a $7,500 limit? Does an annual fee of $50 make sense? Let’s see…

If Joe uses runs through his limit in a given year, his $50 annual fee is the equivalent to tacking on 0.67% in interest ($50/$7,500). So, his 14.99% APR really becomes 15.66%. Joe has to simply ask himself (or prospective creditors) whether or not he can get a card with a $7,500 limit and an APR of less than 15.66% all with no annual fee. If Joe can, Joe should. But if he cannot, then he should sleep soundly knowing that in his case, life with an annual fee is as good as it’s going to get.

It always comes down to the basic rule I’ve preached before and will preach again: Do the math! If you’re no good at math, have someone do it for you. And if you don’t know anybody that’s good at math, we feel for you. Your life isn’t easy. If that’s the case, just give us a shout here at Cardfish.blogspot.com. We can help. And the best part is, there’s never an annual fee!

Until next time,

CardTuna

How Low Can You Go?

2008-02-06T03:01:00.000-05:00

The month of January 2008 was a tumultuous one, with the market bringing some huge upsets followed by a double dose of welcomed news by the Fed. First, to prevent a very ugly day on Wall Street, Uncle Bernanke cut the Fed Funds rate by ¾ of a percent after a bout of global panic that was brought on by fears of impending doom in the US financial markets. Then, during the Fed’s regularly scheduled meeting, Bernanke delivered what consumers and investors alike were expecting – another ½ percent cut to the current 3.0%.

So, what does that mean to all you credit card wielding fiends? When will your credit card’s interest rates fall and by how much?

First of all, your card interest rates are tied only loosely to the Fed Funds rate. They’re more directly tied to the Prime Rate, which as of my authoring of this article, is 6.0%. The Prime Rate, by definition, is the rate that banks charge their most creditworthy customers. Banks borrow the money at 3%, and loan out at Prime or Prime plus x%, y% or z%.

What this means for you and your credit card interest rate is dependent on a few things.

1) Do you have a variable rate card or fixed rate card?

2) What is your creditworthiness (or lack thereof!)?

3) And, do you have a floor? (Newton sure hopes so)

First, if your card is a fixed rate card, you can stop reading and go find yourself a variable rate card, unless of course your fixed rate is so good that a variable card can't currently beat it. Being tied to a high fixed rate when rates are decreasing at a time like this is just irresponsible, unless of course you’re paying your bills in full each month and you get some really great benefits from your card. By switching to a variable rate card when the Prime Rate is on the down-low, you’ll likely be able to find a better rate than what you’re paying now on a fixed rate card.

Next, many credit cards have tiered rates based on their various customers’ creditworthiness. So, if you’re a goody goody and are doing everything right, you’re probably in the “Prime plus x%” category. If you’re good but not perfect, you’re “Prime plus y%” and if you stink at paying your bills, you’re a “Prime plus z%”. Here’s an example of what I mean, straight from the pages of the Toys ‘R Us & Babies ‘R Us Mastercard (yeah, I’ve got rugrats).

Variable rate information

The following APRs may vary monthly based on the Prime Rate:^c

Purchase and Balance Transfer APR: The Prime Rate plus, as applicable, 6.99%, 10.99%, or 15.99% for outstanding and new balances after the introductory period.

^cThe "Prime Rate" is the highest prime rate published in the Money Rates column of The Wall Street Journal two business days before the Closing Date on the statement for each billing period.

So, if you’re a Prime plus x%, you’ll be paying 6.0%+6.99%, or 12.99%. If you’re Prime plus y%, you’re shelling out 6.0%+10.99% or 16.99%, and if you’re a credit-challenged, you’re forking over 6.0%+15.99% or 21.99% APR.

As for my third point, “Do you have a floor?”, I’m not talking about that questionable carpet that is host to 25 different beer stains, toe jam, dirt, dust, and a menagerie of invisible insects trying to keep warm. I’m talking about a rate floor. Simply put, a rate floor is a way for your credit card issuer to make more money when interest rates fall. They do this by limiting the amount they will reduce your interest rate when there is a decrease in the Prime Rate. My understanding is that about a third of the credit card programs out there have rate floors. Here’s an example straight from the published Terms and Conditions of one of the co-branded credit cards that I manage in my day job (to remain nameless):

Variable Rate Information. Your APR may vary. The rate is determined monthly by adding the Prime Rate and:

3.74%, 7.74%, or 13.74% for Purchases and this rate will not be lower than 11.99%, 15.99%, and 21.99% respectively.

The information above was published back in September of 2007 when the Prime Rate was at 8.25%. That’s how the issuing bank arrived at the various rates above.

Now if we were working with today’s Prime Rate and no rate floor, the three rate tiers would be 9.74%, 13.74% and 19.74%. However, because of the additional language “and this rate will not be lower than 11.99%, 15.99%, and 21.99% respectively”, the bank just locked in a 2.25% APR raise for themselves! So, while consumers who use this card are eagerly waiting for their interest rate to drop, it just ain’t gonna happen. Instead, the bank will pocket the spread and, well, take it to the bank!

The overall point I’m trying to make here is that you need to understand the Terms and Conditions that your credit card publishes. They’re usually printed in mouse type and they’re intentionally written to cure insomnia. Plain and simple, the banks don’t want you to read them but, by law, they have to give them to you. So, take the time to understand how your current cards work, and make changes if you’re not happy with them. And if you’re not in the mood for heavy reading, just pick up the phone and call your bank – they have to tell you how your interest rates are calculated. If they tell you that you have a high fixed rate or a variable rate with a floor, tell them that CardFish sent you, then tell them to go pound sand!

Good Luck!

CardTuna

Stacked Points

2008-01-28T23:51:00.000-05:00

In my last article, I touted the benefits of using a rewards card on virtually everything you can, making two key points:

Retailers build the cost of accepting credit cards into the prices of their goods and services so you should use a rewards card on every purchase possible because, in essence, you’re getting a rebate by way of points earned.

The average reward program returns a value of about 1 penny per point.

Well, folks, I’ve been doing a bit more pondering on the subject and concluded that, in many instances, it’s possible to get more than a penny back (sometimes a lot more) for every dollar you spend. So, consider this “Part Deux” on earning points.

You see, many companies offer rewards associated with either becoming a club member or frequent user of their products or services, regardless of how you pay for your purchases (cash, debit, check, credit card). Some of my favorites are in the travel industry – airlines, hotels, and parking. Other examples include sandwich shops (buy 7, get 1 free), car washes and even dry cleaners. Used with a rewards card, you can maximize your earnings on each purchase by stacking your points.

Note: I don’t include those supermarket “club” cards because those are a ridiculous scam, since every supermarket offers them and gives you a discount right then and there for having a card – i.e. there is no ‘loyalty factor’ allowing you to earn free groceries. Anyone who doesn’t use these cards and pays the inflated price instead of signing up for/using the free card right then and there at the register is just a plain idiot.

Here’s an example of a high-value point-stacking exercise, and the math that supports it.

Since I travel quite a bit, I’m always driving down to the airport. Instead of using the parking lot at the airport, I have professed my loyalty to a national parking garage chain that offers their own loyalty/points program. The way it works is that I earn 5 points for $1 spent, and then those points are redeemable for free parking at a later date. These points are not worth $0.01 each. They’re worth more. Here’s how it works:

1 week of parking costs about $140 at this lot (~$20/day, valet)

1 week of parking using the company's rewards points costs roughly 4,000 points.

I then arrive at the value per point by the following formula: $140/4,000 = $0.035

So, on this program, I earn $0.035 back on every dollar spent with this company, just because I use their service. I use the points I’ve earned at the parking lot to get my free parking when I take my family on vacation, like on my upcoming trip to Hawaii. Of course, I am using my rewards credit card for every dollar I spend with them, earning me another penny in value back (and since I redeem my card points exclusively for hotel stays, I technically get more than 1 cent per point). In essence, every time I shop with this particular parking lot, I’m getting a total of over $0.05 back for every dollar I spend.

Here’s one more example with an airline. Pick your favorite, as most every one works the same way.

Buy a ticket from New York to LA = $400. Distance traveled is 2,500 miles.

Since most airlines start redemption at 25,000 miles, that would be 10 cross-country trips, costing a total of $4,000 to get to the 25,000 miles. If you then redeem your points for another cross-country free round-trip ticket, you’re redeeming 25,000 miles for a value of $400. That translates to $0.016 per point ($400/25,000).

Now, purchase your tickets with the airline’s rewards card to sweeten the deal…

Assume your airlines card pays you 2 points for every dollar you spend for purchasing your tickets. That’s another 1,000 points (or miles) for every $400 ticket you buy. After approximately 7 trips, you’ll have earned enough to purchase that $400 cross country ticket on points. That means you’ve only spent $2,800 instead of $4,000 to earn your 25,000 miles (and that assumes you bought nothing other than airline tickets with that card)!

You don’t have to be as anal as me in dissecting every points program to death (although it can be great fun in the wee hours of the morning), but the “point” is that several companies have great loyalty programs. And if you stack your points between programs, you’ll make out like a veritable bandit. If you’re a frequent user of a particular product or service, make sure you search for a company that offers you something back for doing business with them.

You get the point.

CardTuna

Cash is Dead

2008-01-23T21:48:00.001-05:00

The other day, I heard a commercial for the upcoming switch to 100% digital TV in February, 2009. Leading up to the pitch in the advertisement, the voiceover said “Everything’s better in digital, like your music, your pictures, and now even your TV". I found it rather odd that the ad didn’t mention anything about money.

You often hear proponents of the physical greenback making thoughtless statements like “You shouldn’t use credit cards – they’re too dangerous. If you don’t have the cash for it, don’t buy it”. Well, granny, I respectfully disagree.

The electronic currency movement will inevitably give cash its place in the history books and museums, next to the other exhibits of extinction. Aside from the obsessive-compulsive reasons to embrace electronic currency such as not having to handle a bill that 4,563 nose pickers, 67,858 uh “self pleasurers”, and 23,067 restroom non-hand-washers have previously had their hands on, there’s a better reason to ditch the coin, bills and checkbook and fully adopt the world of digital dollars.

The reason is simple – Rewards.

In my last article, I explained that the value of a point was roughly one cent – an almost universal standard across rewards programs. Yes, you can get a better value in many cases and, on the flip side, you can also get short-changed if you don’t choose your credit card account and rewards program wisely. Most rewards programs will give you a point per dollar on everything you spend with your card, and some extra points per dollar for “on-spend” purchases – that is, the brand that markets your card – such as the United Mileage Plus Chase Visa, which offers two points per dollar spent on eligible United Airlines purchases.

So, if credit card companies want to give you money back (again, roughly 1%) for everything you buy using their card product, why wouldn’t you do it? Regardless of how you pay for your purchases, be it cash, debit card or credit card, retailers price in the cost of accepting credit cards into everything they sell. And for a retailer, it ain’t cheap. This cost is called the interchange fee and, depending on the card association (VISA, MasterCard, Discover, American Express), that fee can be roughly anywhere between 2%-4% of the amount charged. Here’s how that fee income gets distributed, using the United Chase VISA I mentioned above, assuming a 2% fee as an example on a $100 purchase at Wal-Mart (disclaimer – The numbers below are for illustrative purposes only. I don’t claim to know anything about the specifics of the VISA/Chase/United contract):

1) VISA collects the $2 and gives the remaining $98 to Wal-Mart.

2) VISA gives the issuing bank (i.e. Chase) their cut. All deals are different, depending on the bank and the complexity/value of the rewards program. Let’s assume Chase collects $1.40 of the $2 that VISA collected.

3) Chase uses the $1.40 to fund the loyalty program – a penny per point – so $1.00 on a $100 purchase. Now, the issuing banks do factor in breakage – a bet that not all points will be redeemed, which means the banks actually spend less than a penny per point. (Breakage is not necessarily a good thing for a bank, as it’s an indication that their loyalty program isn’t resonating with their customers). Chase may pocket the breakage, or their contract with United may require them to share the breakage or pass it all back to United.

4) Out of the $0.40 that remains, a portion – let’s say $0.30 - is passed onto United for use of their brand.

5) The remaining $0.10 is kept by Chase and most likely gets used to fund the marketing of the loyalty program.

There you have it – that’s how roughly 2% of every dollar you spend gets filtered through the system. Every one of us is paying for the rewards programs that exist no matter how you pay for your products or services, whether it’s a stinkin’ pack of gum or a $2,000 replacement transmission.

So, ditch the paper and embrace the plastic. There are a few exceptions, like those contractors who want to charge you a 3% fee for using your credit card, or Uncle Sam who allows you to pay your tax bill on a credit card, again for a 3% fee. Using your card on these types of transactions makes no sense because you’d be spending 3% extra to get your 1% in rewards, so don’t do it. Also, I’d be remiss if I didn’t make any differentiation between debits and credit cards. Debit cards, while practical, do not generally offer rewards, so don’t use them.

Use a rewards credit card for everything you can – even some of your monthly bills can now be charged to a card. Then, at the end of the month, pay off your bill with all of the cash you didn’t spend. You’ll be getting the most for your money, and you’ll be keeping your hands very clean!

Cheers,

CardTuna

Vacation in Hawaii for four, just $20. Not possible you say?

2008-01-17T23:18:00.000-05:00

I want to tell you about my recent rewards success story. But first, let me explain something. There are a few schools of thought around credit card rewards programs, and here they are:

1) It takes too long to rack up the points and are too much trouble

2) The points are good to have when one wants to get something that one might not otherwise purchase on one’s own

3) Points are another form of currency, to be spent as wisely as any other form of currency

Most rewards cardholders who spend a few hundred bucks a month on their cards likely fall into the first category. That’s because redemptions typically don’t begin until 2,500 points (for which one can usually just get a measly gift card). At a few hundred points a month, it can take years to earn a simple reward.

My pal GridMaster subscribes to the second point of view – racks his points up to buy that splurge item he wouldn’t otherwise consider (see “Watch Your Point Values When You Redeem” below).

But me – I subscribe to the third point of view and look at my points balance as if it were cash, and I weigh my redemption options with the same level of care that I choose to spend my hard-earned coin.

As a result, I recently struck the “deal of a century”. I redeemed 270,000 points from my hotel rewards program for a full week at a category 7 (i.e. top notch) hotel and three tickets (non-stop) to Hawaii.

My rewards program allowed me to take 120,000 points (included in the 270,000 points) and deposit it into the airline frequent flyer program of my choice (this is not typical - usually 120,000 airline miles would cost close to 250,000 miles alone, but my rewards program offered a great hotel/air combo deal). So, I chose the airline account that had a 30,000 mile balance – that gave me 150,000 points – more than enough for 4 round-trip tickets – all I had to pay was $5 a pop for my online booking fee. As a result, I’ve got a full week in Hawaii with airfare for just $20!

I figured this was the best value I could get for my points – here’s how it breaks down:

7 nights at the JW Marriott in Oahu – normal room rate = $440/night including tax. Total value = $3,080. Point cost = 150,000. $ value per point = $0.0205

3 round trip tickets (from points) = $480/ticket, $1,440 total value. Point cost = 120,000. $ value per point = $0.012. I “paid” for one of my tickets from my existing miles account balance.

Total trip value (not including fourth ticket) = $4,520. Total points “spent” = 270,000. Total value per point = $0.0167.

Sure, I could have saved 120,000 points and used them for a future vacation at a higher cash value, but I determined it was better to spend the points now, keep the $1,440 I would have spent on airfare and use it when I get to Hawaii for meals and entertainment.

Consider this – most points programs approximate the value of a point at around $0.01. So, when you “earn” one point per dollar, you’re really getting a rebate of about $0.01.

In reality, it’s probably a little less on average across all points programs. So, when you go to “spend” your points, you can maximize your value if you get more than penny per point value. Or, you can redeem for merchandise, cash back or something else for a value under a penny per point. In the case of GridMaster, he got a $200 surround system for 36,000 points. That’s a value of $0.00556. Not a great exchange, but like he said, he got something he wanted but wouldn’t buy on his own. GridMaster did say he prefers to exchange for cold hard cash, so I’m sure that’s one of his card’s better benefits – hopefully he’s getting a minimum of a 1-to-1 exchange (100 points = $1.00).

In my case, as I mentioned before, I advocate the “combo” programs like the hotels and airlines. They’re a great way to rack up points that much faster. Since I travel frequently, I rack up points at a great clip just by staying at the same hotel chain over and over again. Then, I got their credit card, which earns me extra points with each stay (15 times what I would get with another card), plus the standard 1 point per $ on everything else. The points I earn on my credit card spend get deposited into my hotel loyalty program. So, it took me about 8 months to rack up enough points to turn into a week in Hawaii, airfare included. Not too shabby.

In the end, it boils down to your lifestyle and your appetite for spending. If you’re not a big card spender, don’t take too much time to worry about it because it will take years for you to rack up anything of value. Concentrate instead on the card’s other features such as rate and terms. However, if you are in it for the points – do your homework and squeeze the most out of your rewards, then turn them into something you really want. After all, it’s your money!

Sick in West Texas!

2008-01-12T14:17:00.000-05:00

The right card made all the difference! I was going to visit relatives in Midland, Tx and hadn't booked a hotel because there is always something open. On the plane I began to feel a cold coming on. By the time I had landed and Picked up my rental car I felt lousy. I was driving pst the 3 usual "Motels" and wasn't very excited to stay at a place where I'd have to pull up to my room in the car. I wanted to be pampered a bit by then. I stopped in and found that since a rodeo was in town their rates had gone up. It was going to be $139 a night. For a Motel. I got on the phone and called the Midland Hilton and they said that it would be $159 a night. So ... I took that. When I came to check in they parked my car, helped me with my bags, and took me to the check in desk. The desk clerk asked what card and I asked do you have a discount. She said "YES!" If you have a Chase Visa we have a Discount. I pulled out my Card and got the Room for $139 a night. amstillThe same as the "No-tell Motel". Made my day and made me feel a lot more comfortable. I'm still sick now and on my way home, but I'm so glad I had a good stay at the Hilton. I was able to use the Steam room at the SPA, got excellent Room service, and the concierge sent a quart of OJ, Cold Medecine and a couple extra tooth brushes.

It pays to ask! and this time it wasn't just about the $$!

Late payments will imprison or impose capital punishment on your rewards

2008-01-12T13:43:00.000-05:00

You already know all the good reasons to pay your credit card bills on time, like maintaining or improving your credit score, avoiding ridiculous rate hikes and late fees, not to mention steering clear of unwanted notices and embarrassing phone calls from collection agencies. But there’s another reason you want to pay your bill on time, and that’s the access to your rewards you’ve earned.

Typically, credit card companies will not only restrict use of your card when your account is in past-due status (which prevents you from earning rewards points, let alone access to your credit line). In addition, your issuer will likely prevent you from redeeming the rewards you’ve already earned!

This ruling is often revealed in your card’s terms and conditions or program disclosures with language like the following examples:

Bank of America’s Worldpoints language: “To participate in the Program, you must (a) maintain a Card that is open and has charging privileges, and (b) be an individual (no corporations, partnerships, or other entities)”

Capital One’s language: “Your account must be open and in good standing in order to redeem, which means it isn't past due, overlimit, fraudulent, restricted, part of a consumer credit counseling program or in a bankruptcy settlement”

Citibank’s language: “To be eligible to earn and redeem [rewards], your [card type] account must be open and current and must not be in default. Citibank may revise or terminate the [card type] [Reward] Program at any time with 30 days prior written notice”

Even though these are your rewards that you’ve rightfully earned over months and years of using their product and paying your bill on time, issuers will invariably lock-up 100% of your rewards bank while your account is in past due status.

Here’s another sneaky catch to watch out for: Some card companies, like Capital One, will even revoke the points you earned in the billing cycle where you made a late payment! Their terms and conditions language is: “If a late fee is charged to your account, you will lose any miles applied to your rewards balance during the billing cycle containing the fee”. So, say you have a big charge like a $2,000 car repair that you throw on your card. Then you pay late that month – all of the points you earned on that charge, and all other charges in the month – they take away from you!

The moral of the story is, if you’re racking up points at a good clip or you’re planning to cash-in your rewards any time soon, make sure you keep your account in good standing (you should be doing this anyway)!

Note that there ARE a few exceptions to this rule. For programs like airline mile and hotel credit cards whereby points accumulated on a monthly basis are subsequently deposited into your airline or hotel loyalty program account, you will be able to access these rewards because they no longer reside with your credit card company.

Unfortunately, and by design, the credit card companies’ Terms & Conditions legal disclosures are less interesting than watching paint dry or grass grow. The reason the language is usually printed in gray 4 point type and includes paragraphs with no less than scores of lines bunched together is because they don’t really want you to read it, but the law says they have to provide those rules to you when you apply for a card.

To understand the various rules of your different credit cards or the cards you’ll apply for in the future, you need to familiarize yourself with this very important language. Hopefully someday, for everyone’s sake, we’ll all have a resource that can provide the “Cliff’s notes” versions in simple, plain English!

Until then, consider your T&C’s a great cure for insomnia.

CardTuna

More on your FREE annual credit report

2008-01-12T11:54:00.000-05:00

Folks,

Your new resource for all things credit, a.k.a. this blog, is way ahead of the curve. Yesterday, this article on free credit reports ran on msn.com, a full nine days later than we ran our post "It's time for your annual checkup".

That said, the msn article has some additional information that you may find useful, so be sure to check it out. And, stay tuned to Card Fish for more insightful posts throughout the year.

Cheers,

CardTuna

Papers please!

2008-01-08T08:13:00.001-05:00

Watch those cross-border fees when using MasterCard in 2008. MasterCard, feeling pressure to continually grow earnings now that it's publicly-held, has increased cross-border transaction fees from 20 to 40 basis points as of January 1st.

This means that your most recent fees update from your bank will show an ability for them to charge more for the "foreign fee" (for transactions outside the U.S.A.) this year and forward.

What does this mean to you if you travel internationally? Check your credit card T&Cs before you go overseas and find the cards with the lowest "foreign fee." Consider using travelers checks, at least in countries where it's pretty safe.

And remember when you're visiting the Great White North that those bar tabs in Toronto are most definitely "foreign" to your bank and MasterCard.

Call your credit card company collect for faster service?

2008-01-08T06:17:00.000-05:00

There's an interesting idea from the good folks at the Consumerist yesterday. They've suggested that, instead of using the 800 number on the back of your card, call them collect via the International number. The theory is that international collect calls cost the bank a lot more, so they prioritize the calls to avoid keeping you on hold for too long.

The problem with this is that the incremental costs associated with international collect calls are relatively inconsequential in relation to the sum total of a bank's telecom expenses

If it works to get you through faster, billiant! But can anybody confirm that this really works?

Watch Your Point Values When You Redeem

2008-01-06T16:29:00.000-05:00

Do you have a rewards points program with your credit card, maybe something like WorldPoints?

Well, here's a couple of hints to help you burn off all those points you accumulated while burning up your credit lines.

Check your points online periodically. Check your paper statement against the point totals online. You want to make sure you've been credited properly for all the points you've earned. You also want to make sure you don't have any points that are going to expire shortly--it'd be a shame to let all that hard work spending to earn the points go to waste!
Check the rewards periodically. The assortment and point totals necessary to redeem for a certain gift might change from time to time. You might suddenly see a new reward show up, perhaps something you've been considering buying with cash, that you may want to jump on. You might also see a "good deal" for the points appear.
Consider your points from a POV of personal value. Let's face it, the redemption prices of the products you have access to are going to be lousy. (After all, the credit card companies have to minimize the costs associated with the points programs!) So don't worry too much about what's the best dollar value "deal." Rather, look for items that provide you with a surprise or delight. Something that feels like a splurge or luxury, yet has a high level of utility to you.

I recently decided to cash in about 36,000 points from BofA's WorldPoints program, as I'd stopped using the card and figured I'd better use the points before I forgot about them. I found a great "surprise and delight" product on the site in the form of a Phillips surround sound system with DVD player. It probably doesn't have a huge price tag associated with it. But it actually works just fine for my bedroom TV, was something that I've avoided paying $200 for over the last 9 years and--this is the key--made me feel great when I was watching the most recent Die Hard DVD the other night. I loved the feeling of having surround sound while sitting in my bed!

Now, do I normally advocate points programs? Nope. All my new cards provide benefits back to me in the form of cold, hard cash. But, if you've got a product rewards program, take a few minutes to get the best of those points. (Before you convert to a cash rewards program!)

Anybody else out there get a cool product from their rewards program?

It's time for your annual checkup!

2008-01-02T19:47:00.000-05:00

Just like you go to the doctor each year for a complete physical (you do go, don’t you??), you need to get a pulse on your financial well-being to make sure nothing’s amuck.

Each year, you’re entitled to a completely FREE credit report from each of the three credit bureaus (Experian, Equifax, and Trans Union). And there’s no better time than the new year to check that everything on your credit report is in good order. All you need to do to receive your free credit report is visit www.annualcreditreport.com. This is the ‘real thing’ - There are other sites out there (like www.freecreditreport.com) that are designed to sell you report packages and credit monitoring, and will try to rope you in to paying for something, so make sure you visit the right site, i.e. www.annualcreditreport.com.

When you get your report, carefully check through the list of accounts and make sure you recognize each of them. This can be a tricky process as many of the account listings can look unfamiliar – for example, an instant financing loan that you might have received a card for but never used. The best way is to grab all of your various credit cards, private-label store cards, and loan docs so you can match up your account numbers. If you find an account or other activity like an inquiry that appears suspicious, you can contact the credit bureau that reported the suspicious activity. Links to each of the bureau websites are below:

www.experian.com
www.transunion.com
www.equifax.com

So waste no time and grab your free annual credit report today. It’s usually much more pleasant and less-invasive than visiting your general practitioner!

Cheers,
CardTuna

Increasing Your Credit Line by Doing Nothing at All!

2008-01-02T09:40:00.000-05:00

How do you increase your line of credit with an existing card? The obvious solution is to simply ask the bank to extend the credit limit. And that works, as long as your payment history is good, have a good FICO score, etc.

However, another way of getting more credit is to just do nothing. On Dec 31st, for example, I got the word from Bank of America that they were increasing my credit limit to $23,500 from $20,000 on a platinum MasterCard that I've had with them since 1988.

The back story is that I've not been happy with BofA for a while now. They have been slowly jacking up my rates, even though I've been a long-term customer. (Although not a "good" customer, as I pay my bill in full every month.) So I stopped using the card back in September and switched over to an Advanta credit card, which had a much better rate, should I ever need to revolve a balance.

Turns out that BofA quickly noticed I wasn't using their product and they weren't even collecting interchange on me. So they thought that by increasing my credit limit and sending me a bunch of checks (with a 1.9% balance transfer rate--whew, what a lousy offer!) that I'd mend my ways and come back to Bank of America. Well, I probably won't go back to using their MasterCard, but I do appreciate the larger line of credit. You never know when you might need some short-term credit to tide you over.

Tips and Tricks for the New Year

2007-12-30T11:51:00.001-05:00

Hello all you credit-needy, credit-worthy, credit-hungry, credit-addicts!

I’d first like to take a moment to wish you all a very Happy and prosperous New Year!

With 2008 imminently approaching and all of those resolutions about getting out of credit card debt, losing weight, having more sex, and quitting smoking, I’d like to take a moment to share with you some expertise on how you can succeed with at least one of the above!

OK – since I’m skinny, married and I don’t smoke, I don’t know anything about the last three resolutions. I’m sorry, but I simply can’t offer any sound advice on any of those topics.

So, let’s concentrate on what I’m good at – getting out of credit card debt (or, at a minimum, reducing it drastically).

It all starts by looking in to your financial mirror so that you can evaluate your creditworthiness.

Are you a good credit risk, do you pay your bills on time, have you tapped less than 50% of your available credit? If so, good for you. Here are some things you can (and should) do…

a. Call your credit card company and just ask for a lower interest rate. Tell them you’re getting offers left and right for lower interest (even if you’re not) and that you’d prefer to stay with them since you’ve already got a long and healthy relationship. Don’t be surprised when they lower your rate 5% or more.

b. Take advantage of new credit card offers. If you’re like me, you’re receiving a new credit card offer in the mail every 2.1 days. These offers ALWAYS come with a 0% APR on balance transfers for a minimum of 12 months. And, contrary to popular belief, if you’re credit score is good, applying for a new credit card won’t destroy your credit score – it’ll only knock it down a coupla’ points – no biggie if you’re already in good shape. Then, transfer your high rate balances to the new card and enjoy a minimum of 12 months free money! If you really want to screw with the credit card companies, don’t charge anything else on the card after you transfer your balance. Then, gloat in your new status as a “Credit Card Gamer”! Then, guess what – in 2009, you can do this all over again with another victim credit card company! It can be great fun beating those robber barrons at their own game. I’ve been doing it for years.

c. Take advantage of your balance transfer checks from your existing credit card companies. Card companies have to compete with each other (especially those offering you 0% APR on balance transfers), so they send out these balance transfer checks for 1.9%-4.9% to lure you to transfer your other debt to your account with their company. But, be warned – there is often a catch! Once you take advantage of one of these offers, you “agree” to pay off your low-interest balances before your high-interest balances. SO, guess what – you’re racking up all this extra interest on your pre-existing balances while paying off your balance transfer. One good way to get around this, if you have the means, is to pay off your existing balance BEFORE using your balance transfer check (see section “b” above). Then, activate your balance transfer check for anything like your heloc, car loans, or Vegas trip where you attempted to satisfy resolution #3. But, if you do this, you MUST follow the next rule which, simply put, is to cut up your credit card for this account. In other words, don’t charge ANYTHING else on this account while you’re paying off your transferred balance. I did this with my car loan and went from paying $250 a month in interest to paying $45 a month. There’s one more thing to remember here – again very important. DON’T EVER MISS OR BE LATE ON A PAYMENT. You’ll kiss your pretty little interest rate away and be slammed with a 25%+ rate hike plus late fees. It’ll get ugly quick. But, hey, if you get an offer like this, it means you’re responsible already and don’t need to worry about anything.

If you’re creditworthiness is non-existent, then I’m sorry to say the only thing you’re receiving in your mailbox are collection notices and other threats from loan-sharks or guys named Vinny. In this case, buy some Suze Orman books and get your financial house in order. There’s no excuse for your pathetic state (unless of course you’re a single mother of five working for tips at a diner or strip club – in which case, you need to resolve to have LESS sex so that you don’t have any more rugrats, ‘cuz they’re expensive).

Here are some steps you need to follow (and, yes, you’ve heard them before)…

a. Make your credit cards very difficult to use. Cut them up. If you can’t afford a pair of scissors, put them in a bag, fill the bag with water and stick it in a freezer. This works, believe it or not. Then, in case of emergency, defrost and the card will still work (just dry it off first).

b. Redirect your spending. Odds are, you have a lot of monthly drains to your income – Cable TV, broadband internet, cell phones, netflix/bockbuster – you CAN do without any of these, especially since you’ll be spending all of your newfound time reading Suze Orman books. Then, consider the money you’re spending on takeout pizza and other fast food. They make these things called Ramen noodles, and you can buy like 7 of them for a dollar. And, pasta’s cheap – so get creative and you can easily cut $100 or more a month off your food/dining bill.

c. Consolidate your debt and pay down your balances. If you have several credit cards that are causing you intestinal unrest, try to get all of your balances transferred to a single card (the one with the lowest rate, dummy). Then, take all of your newfound funds from “b” above and start chipping away at your balances.

d. Suck it up. Get used to your situation, and live the life of a broke person for a while. Be happy with your beater apartment and beater car. And if you can save some money by downgrading from your Saturn to a Kia, then do it. It’s only temporary. Resist any and all urges to open new credit cards – especially those at the big retailers like Target, Best Buy, Macy’s, Circuit City, etc. These are called “Private Label” cards, and they’re the equivalent to voluntary sodomy. Their interest rates are usually 50%+ more than what your typical Visa/MC/Amex/Discover will charge you. But you already know that you’re not allowed to open any more cards, right? After all, you’re digging yourself out of the hole you jumped into.

So, whether you’re already a credit champ or your FICO looks like it lost a fight with Mike Tyson, the advice above will surely put more money in your pocket in 2008. The last piece of advice is to bookmark this blog, check in daily and enjoy your newfound resource for credit advice, tips and user stories.

Cheers!
CardTuna

What sense does it make?

2007-12-30T11:41:00.000-05:00

Why would a card give you a discount you aren't aware of at the register? You've already made the purchase decision...does the discount give you social permission to go buy more...I don't think so. What the discount does is provide positive reinforceent of your choice to use this card instead of the other 3 in your pocket!

I think I'll resolve this year to carry more card in my pocket and maybe I'll build a note section on my Blackberry to keep track of the discount...nevermind ...life just gotreal and it got busy and I'm chasing the kids......

Found Great Retail Deal!

2007-12-29T22:38:00.000-05:00

I was shopping for shoes, and found the "Perfect" pair to go with my hot new outfit. But they were not on sale and I really wanted them. We'll I decided (against my better judgement) to get them anyway. When I went to purchase them I used my Chase Visa and "YEA!!!" they said that I get a 20% discount using that card. I was like super happy and completely taken by surprise. I'm going to check what other discounts I get.

I don't know!

2007-12-29T09:33:00.000-05:00

I have no idea what rewards I've got. it takes me too much time and for what a toaster? Seriously, I don't think they really care if we use them or not, just a way to get you to choose their Credit Card.