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.

The committee of they says there’s no such thing as bad press, and they may just be right, given the fact that MasterCard was picked Thursday to join the S&P 500 and S&P 100 indexes starting July 17. The news comes on the heels of reports that MasterCard will pay a $1.8 billion settlement after American Express accused the company of engaging in unfair competitive practices. And the day that bombshell news broke in late June, MasterCard shares rose while AmEx shares dropped. Go figure.

Seemingly unstoppable, MasterCard shares are still going strong. Apparently, much stronger than General Motors Co., which MasterCard is replacing on the S&P 100 (thus far, no reason given for the GM snub). MasterCard’s sudden elevation to the Big Boys Club is hardly a surprise. It’s stock is like the Google of the financial services sector, hovering around $250-$300 over the past couple months while Visa, American Express and Discover shares stand at only $75, $50 and $14, respectively. And to think that MasterCard’s May 2006 IPO debuted just under $40, amidst widespread skepticism.

So what does all this S&P hype mean for the already-stable MasterCard stock? More than likely, it means really, really good things. According to The Economic Times:

Shares of companies joining the S&P 500 often rise because many portfolio managers try to track the index, and are required to buy shares of companies that enter it.

It also means it’s probably a really, really good time to jump on board before the MasterCard madness peaks, even if you weren’t lucky enough to get in on the ground floor.

My local chapter of the Better Business Bureau is strongly encouraging participating businesses to start paying their employees with MasterCard’s Trust Card, an idea that is expected to quickly spread to other BBBs nationwide. So what’s the deal with these plastic cards that look no different from a credit or debit card? They’re hardly a new concept, but they are finally getting significant attention as companies seek to cut costs.

The concept of payroll trust cards (also offered by Visa and several banks) is essentially a way for a person to receive money from another, in real time, without the dangers of carrying cash. There are, however, other risks associated with carrying plastic, like consumer identity and liability protection. When used for employee payroll, the cards often bear the employee’s name, which make it much less risky in the area of identity theft and fraudulent card usage.

The cards enable employers to save a significant amount of money when it comes to payroll costs (total savings of about $114.4 million in 2003). Payroll trust cards are marketed primarily toward employees who don’t have bank account and ATM access, and employees who travel frequently and may miss paydays at the office. Of course, direct deposit is always an option, but many states prevent employers from mandating participation in direct deposit. The costs for employers to use direct deposit are comparable to the costs associated with Payroll trust cards, both significantly cheaper than the cost of writing checks. In the local news story covering the BBB’s initiative, employers tout payroll trust cards’ ability to help employees spend smarter (?) and become more financially independent (?) — not sure how they draw that conclusion.

Interestingly, Visa’s product, called the Spectrum card, is offered as a way for single parents to collect child support in the state of Alabama. The cards are nice because they work just like debit or credit cards at the ATM or at the cash register. Still, I’m a control freak who is leary of any purchase or ATM fees that might be associated (for instance, my bank charges 25 cents per debit transaction). I also have accounts at three different banks and wonder if dealing with a card might make it more of a hassle to manage the flow of my money. I suppose not, as long as the appropriate ATMs are conveniently located. Anyone who has ever dealt with those Visa gift cards knows what I’m talking about — to check your balance, allow about 20 minutes. Oh well, time will tell how these products fare in the marketplace.