Credit Card Debt Management

When it comes to credit cards and fine print, there is usually plenty of room for confusion. It’s been seen in the fact that few cardholders really know what their card’s interest rate is. The majority of cardholders aren’t even aware of the Universal Default Policy, and what it means to their financial health.

Well, chances are good that few cardholders really understand their highly-touted credit card rewards as well. It would take a very savvy cardholder to understand the fine print on these rewards and learn how to play the system. There are often very specific restrictions on these, like spending levels that must be reached before rewards begin to accrue at the advertised level. There might also be expiration dates on the points, or specifications on how the points can be accrued and used. There might also be annual fees, negating any rewards benefits except for really big spenders. Furthermore, rewards payouts may not be automatic, but only available upon request.

Another thing that consumers might not recognize is that rewards programs are changing, and not for the better. Companies are cutting back and becoming much less generous (not that credit card rewards were all that special to begin with), largely because of the current economic times. According to the Associated Press, CardRatings.com data shows that the best cashback rewards card are American Express Blue Cash, Chase Freedom Visa, and Discover More. The best gas cards: Cash PerfectCard MasterCard, Discover Open Road, and Shell Platinum Select MasterCard.

Ultimately, as the Associated Press reports, the final conclusion is that credit card benefits like rewards programs may not outweigh negatives like unpredictable policies that are subject to change at any time and have the power to majorly mess up your FICO score. Namely, the fact that companies fluctuate interest rates and spending limits at will. And, as aforementioned, rewards programs are becoming even less enticing now. It’s something to think about next time you get that uber-tempting credit card offer in the mail. And if you do move forward with choosing a rewards card, choose carefully and consider all the variables.

Well, we speculated that the credit card industry might be sinking, or at least receding, and that card companies may need to cut back on customer rewards. Guess what — it’s happening.

A recent Newsweek article how American Express and Citibank have cut back their rewards. Specifically, that means no more 5 percent and double-cashback rewards for cardholders who buy groceries and gas. It’s a fine time to yank that reward, given that consumers are increasingly buying only commodities like groceries and gas instead of luxury splurge items. Cardholders trying to navigate the murky waters of credit card rewards nowadays are going to find the ride much bumpier and will probably meet with much more resistance.

One of the cards getting chopped is the Citi Dividend MasterCard, from 5 percent on everyday purchases to only 2 percent (though it’s adding utilities and convenience stores to the list of everyday purchases). HSBC’s Direct Rewards MasterCard is still offering a 5 percent rebate at gas pumps, grocery stores and drugstores, though it is also a potential candidate for a cutback in the future.

The key to making credit card rewards work for you in tough economic times is to go for cashback rewards. Everybody needs a little cash every now and then, right? However, really consider whether it’s wise to put all your gas or groceries on the card just to rack up a relatively paltry cash reward and put yourself at risk for interest charges.

Essentially, by charging “everyday purchases,” you could be flirting with disaster. Is it possible that you might have $150 cash available for gas this week, but choose to use the card instead for its rewards benefit. Then, when the bill comes due, you don’t have that cash to pay it in full (unless you’ve been a savvy saver). By not paying in full, you subject yourself to interest charges that could well exceed any “cashback rewards” you may have earned.

Furthermore, you may not even see the cash rewards for a while, because some companies require it to accumulate to a certain amount. So bottom line, think about it. While these cash rewards are touted by marketing gurus as “discounts” on gas, groceries and utilities, the ultimate discount may just be to go ahead and pay cash to prevent any possible interest charges.

Bank of America, with its Visa partnership, was one of the pioneers. Discover and MasterCard debuted theirs in 2002 and 2003, though those products appear to be defunct now. It’s the keyring credit card, a miniaturized version that consumers have the option to receive in addition to their regular credit card. A Boston Globe article tells the tale of one suburban mom who loves the keyring card for its convenience, allowing her to leave her purse and wallet in the car.

The article also tells the tale of Bank of America’s estimates on the profit increases linked to keyring credit card use. Of course, consumer studies have shown that shoppers tend to spend more when swiping plastic instead of using cash. Amazingly, according to the Globe article, further studies have shown that consumers with the miniature plastic will spend 2 to 3 percent more than regular credit card users.

But, customer convenience and increased corporate profits aside, is this really a good idea? Hello, identity theft? Anyone? Call me crazy, but am I the only one thinking this could be a problem? The miniature credit card has apparently given way to the Speedpass, a miniature keyring device that works with the radio frequency-enabled system allowing consumers to pay with a mere swipe of their card in front of a card reader.

A lot of people already considered the RFID-enabled credit card unsafe. Despite the card’s very low frequency, some feared the emissions could be picked up any nearby identity thief with an RFID card reading device. Nevertheless, many credit card companies are making their new or replacement cards RFID-enabled, whether the cardholder knows it or not. And now that little RFID device can be on your keyring, too. According to MSNBC columnist Gary Krakow, Mobil and Exxon gas stations are on this miniature Speedpass bandwagon, and McDonald’s will also soon join in.

Remember those needlepoint keychains that said “Jesus” in a sort of puzzle form that looked like Oriental writing at first glance? They were everywhere in the 1980’s — at least in the Bible Belt, where I was raised. I’m going to go make one of those for my keychain, only it’s going to feature my social security number and birthdate in neon green. It will be safe and undecipherable because it’s a puzzle, an illusion, trickery of the eye. Probably nobody will figure it out. After all, these identity thieves aren’t too smart, you know.