Here are three somewhat weird things that happened in the world of credit cards today.

Citi Has A Strange Offer

I am a big fan of the reward cards that offer a minimum spend to get to a big reward.   It seems like a fair deal to me.   You give us your business, and we give you a reward.   For example, Citi’s American Airlines cards require a $750 in total spending before getting a 30,000 mile reward.      The latest offer from CitiBank is a strange twist on that.    This article points out that Citi is now offering to lower your interest rates if you spend $750 a month.

I think this is taking it a bit too far.   In my world, people paying credit card interest are, by my definition, spending too much.     They are inherently in over their heads.    Asking them to spend more to lower their interest rate is predatory.    On the face of it, most people of low to moderate income will spend at least $750 a month, so you could argue that Citi is just asking you to use their card over others.    Even that line of argument reminds me of tobacco companies defending their advertisements as just wanting people to switch brands, even as they placed ads in teen magazines.     The other problem is that if other companies start doing this, soon you will have a situation where someone could owe money on multiple cards, and they will have to go further into debt to reduce their credit card payments.

I love reward cards, yet I firmly believe that they are only for people who pay their bill in full every month.   I really think a line is crossed when you go from a reward based on a minimum spending amount to a lower interest rate based on a minimum monthly spend.   Shame on you CitiCard for implimenting predatory practices, even if they are not banned by CARD!

Better New From Chase

Chase has decided to end the mandatory binding arbitration clause in its cards.   This kind of arbitration is inherently unfair.    The original idea behind arbitration was that disputes could be resolved more quickly and less expensively in a private setting than in the courts.    Mandatory binding arbitration turns this upside down in that you have essentially given away your rights to an impartial judge, and now must submit to a very lopsided forum.      According to this article, “A congressional report in July said the National Arbitration Forum, a Minneapolis-based company that handled most debt arbitrations in the U.S., misled consumers and hid ties to collection firms. Companies won almost all the time, according to the American Arbitration Association.:

While this is seen as good news, it is akin to a reading a headline, “Man Stops Beating His Wife”.    Obviously it is bad news that this practice  ever occurred.    Worse, I have have seen no indication yet that other banks are following Chases lead, yet.

The Strangest Credit Card Ever

Finally, here is an odd article about a “credit card” that cannot be used to purchase anything.   It’s purpose is to be used as a utensil.    Granted, I have used credit cards to try to jimmy a locked door, or even to scrape ice off of a windshield, but I don’t imagine I will ever use one as an eating utensil.   The thing cost $12, about the same price as some decent cutlery!   I think it is sold for design, artistic, or novelty purposes.

Are you really so short on space that you can’t bring along a regular plastic utensil?     I would sooner slurp my soup or eat with my hands, thank you.

This is a guest post from Aryn of Sound Money Matters and today she is going to share with us on how she makes use of her reward points. Consider subscribing to her blog for more tips. She has also written a holiday savings ebook which you might want to check out.

Even though I’m a lifelong annual fee opponent, I willingly accepted a Delta Skymiles card with a fee. I even upgraded to a higher-level card with a larger fee to get even better travel rewards. (http://www.soundmoneymatters.com/travel-rewards/) So how does a frugal person like justify paying an annual fee for a rewards card?

How We Maximize Our Rewards

We make almost all of our purchases on the Amex. We make small purchases here and there on our other two cards to keep them active, but day-to-day purchases are on the Amex. For a long time they offered double miles on grocery store, drug store, and gas station purchases, but eliminated that bonus around the time the credit crunch started. Instead, we get mileage boosts at certain purchase levels. That’s why we upgraded. Rather than a one-time 5000 mile boost, we earn several boosts totaling 15,000 miles a year in exchange for an extra $40. We could earn up to 25,000 miles, but we don’t spend enough to attain that extra 10,000 miles in boosts.

I also do my online shopping in a way that maximizes my rewards. The Delta Skymiles Shopping is available online and includes several stores where I like to do my Christmas shopping. Usually they’ll offer 2-5miles for every dollar spent. I can earn an extra 600 miles or so just for buying stuff I would have bought anyway.

How We Use Our Rewards

I’ve considered switching to a cash-back rewards card because we could easily make $300 a year back in cash. Then I calculated the potential cash against the potential cash saved by using miles to travel. So far we’ve used our miles twice. The first time was for our honeymoon to Ireland. My husband had 50,000 Delta miles accrued in his frequent flyer account. The minute my credit card miles topped 50,000, we called to book our trip. We booked in April for an August honeymoon, so we had to do some creative routing, but it was still much cheaper than two tickets to Ireland.

The second time we used miles, we went to Belize, which cost 70,000 miles for two people. We traveled in between Thanksgiving and Christmas, with enough leeway on either side to avoid holiday black-outs, so we had no trouble scoring seats even though we booked a mere five months ahead instead of the 330 days usually recommended. I also bought the resort package through Luxury Link to save more money, but it required some planning to make the two deals work together. I followed this order:

1: Review LL Belize packages to find one with an available date after I’ve accrued enough vacation time and in the shoulder season (not the wet season).
2. Check awards seat availability online to make sure our preferred dates are available.
3. Contact the resort to make sure our preferred dates are available.
4. Buy the package and immediately email the owner to confirm our dates.
5. After receiving confirmation, immediately book the awards tickets online.

At the time, tickets from LAX to Belize cost around $700, so using our miles saved us $1400. That’s $1400 that went toward our debt (http://www.soundmoneymatters.com/october-debt-reduction/) , which we paid off before the trip. Not bad for a $95 annual fee. It took us about two and a quarter years to earn 70,000 miles, bringing our total annual fee investment to $165 (we were only paying $55 a year at the time.)

Our next miles trip will be Australia. We’ll need 100,000-140,000 miles if we can reserve our trip 330 days out, but we’re already back over 75,000. I expect it will take us 9-18 months to earn enough miles for the trip, which will then have us visiting the country in 2-3 years. Tickets to Australia are currently $1300 each, so our $380 in annual fees will save us around $2200. That’s money we can spend once we’re actually in Australia.

Mileage rewards aren’t always good deals, especially if you don’t have the flexibility to travel at off times and book well in advance. Because we use our miles to save thousands of dollars on dream trips, the mileage reward is worth more to us than we’d get from a cash back card, and far more than the cost of the annual fee. If you choose a mileage rewards card, don’t be tempted to fritter away your miles on hotel stays, gift cards, or shopping discounts. Instead, maximize your rewards by building them toward a dream trip.

Bio:
I’m Aryn from Sound Money Matters. I’m a thirty-something DINK living in high-cost California. My husband and I recently bought our first house after paying off $40,000 in debt in one year. My blog focuses on frugality, along with the occasional rant about personal finance issues.

Lots of interesting news today in the world of credit cards.

What Happens To Your Miles If You Pay Late?

I have previously talked about what happens to your points or miles when you cancel your credit card, or have you card canceled by your bank.     A separate but related question is what happens when you pay late.    In the past, just about all rewards were based on your spending.   Now that there is this credit crisis going on, and fewer people are actually paying their bills on time, if at all,  more credit card companies are doing the next logical thing; they are withholding rewards if you don’t pay your bill on time.    Here is an article over at ABC news about how Amex will be doing this on their Delta, Starwood, Hilton, and JetBlue cards.    The article really focuses on the fee they are charging to get your miles back.   The consumer groups they quote are outraged that there is another fee that the card companies are imposing.

I might surprise people, but I really have no problem with this policy or this fee.    I frequently mention that you have no business using reward cards if you cannot pay your bill in full, and you probably shouldn’t even have a credit card if you can’t pay your bill on time.    The rewards they give you are for being a good customer, and that cannot be said of you if you don’t pay your bill on time.    The fee to recover the reward is a bit silly.    Depending on your balance, it may or may not be worth it to recover the points.     At that time, you are just buying X number of points for X dollars.    The lateness really shouldn’t be a factor as to whether or not you choose to pay the fee.    The good news is that with these third party affiliate cards, once the points or miles are in your account, they are yours to keep.    Short of some sort of fraud, there is no way that Amex is going to take back your Hilton/JetBlue/Delta, or Starwood points that have already been deposited, no matter how bad your relationship with Amex becomes.    The same is most definitely not true for their Membership Rewards program, whose points only exist so long as you are a member, as the name implies.    If Amex decides they no longer wish to have you as a customer, the points disappear.

The End Of Rip Offs?

The blog over at the Mint website is speculating that the soon to be effective CARD act regulations will bring an end to credit card rip offs.    This is a fairly accurate, if optimistic look forward to next February, when we will get our first glimpse of the the world after CARD.  In reality, credit card companies will find other ways to rip us off, this bill just eliminates the most blatant and longest running scams going.    Some people thing that the aforementioned “restore your points” fee is a rip off.    It certainly will generate some new fees.     Here’s to hoping that credit card companies will try to earn their fees in honest ways.    My prediction has been that we will see more and more promotions that require a minimum spending amount, like X miles after X dollars spent in one year.    This will be a terrible incentive for some people to spend more, but at least it is more honest than having due dates on holidays, universal default, and double cycle billing.

Finally, The GOP is for higher APRs

I really don’t want to make this blog too political, but there is no way around the fact that the CARD act, which I love, was passed with the overwhelming support of the Democratic Congress and a Democratic president.    Now that the banks are jacking up interest rates in advance of it’s implementation, it is sadly unsurprising that the Republican party is doing everything in it’s power to block efforts to free credit card interest rates. I really hope that their opponents in the next election raise the issue that they voted for higher credit card interest rates.

The Bank of America Accolades card is BOA’s version of their high end prestige card. Being late to the game, they have to compete with the traditional giants in this space, American Express Centurion, Citi Chairman Card and Diners Club. So how does this card stack up? Well, let’s have a look.

Earning Rewards – Like all Bank of America credit cards, the reward program for the Accolades card is based on the WorldPoint Rewards Program. You get to earn one point for every dollar that you spend on the card. WorldPoints points are good for 5 years from the month that you earned those point. Cardholders can earn unlimited points.

World Points Rewards – I tend to judge high end prestige credit cards based on their travel rewards and extra perks. Most high end cardholders tend not to redeem points for gift cards or merchandise. This card though is tied directly to what WorldPoints has to offer.

Travel Rewards – WorldPoints has a hybrid rewards for travel which I will explain below. Firstly, they allow you to redeem points for airline tickets to certain destinations. The table below shows the number of points needed. Though there are “no blackout dates”, there are a couple of restrictions for the WorldPoints program. Air travel reservations must be made at least 21 days in advance and include a Saturday night stay. Car rental and hotel reservations must be made at least 7 days in advance.

WorldPoints also has another program called the Flex Air where you can book your own flights (through WorldPoints) and use points for your purchase (100 points for $1). This is slightly more flexible than the above method where you are subject to the availability of WorldPoints “in house” travel agents.

Below are some other travel benefits of this card.

– You will get refund of $350 if a retailer refuses to take your returned goods.

Fees – The annual fee is $295 though it is waived for private client members of BOA with more than $200,000 of assets with their private wealth management unit.

Comparison to other cards – As I have mentioned in my reviews of high end cards, travel rewards are the most important feature for high end cards. Unfortunately for the Accolades card, the rewards are based on WorldPoints program. The good thing about WorldPoints is that the old system to redeeming a set number of points for a certain travel destination is still in place. But it comes with the usual restriction like having to book 21 days in advance or having to stay a Saturday night. I think most cardholders will want more flexibility and so will probably use the Flex Air Option, where you can book any flight with WorldPoints (where 100 points gets you $1). For this reason, I think the Amex Membership Rewards and the Platinum Card is much better because you can either do it like the Flex Air method or transfer points to frequent flier miles.

For this year, their international airline program allows you to get discounted companion ticket when you pay for a full fare ticket. In this regard, I think the Amex Platinum International program is better because you actually get a “free” companion ticket when you book a full fare business or first class ticket (and depending on what sort of discounts you can get on a discounted ticket, the free companion ticket may be more cost effective).

While the Accolades gives complimentary membership to Priority Pass, they do not have hotel elite status embedded. For example, you are eligible for a gold level Starwood Preferred Guest Membership with the Platinum Card and Gold Level Membership for Hilton HHonors with the Citi Chairman Card. You do not get such benefits with the Accolade.

It’s other features are pretty standard for an elite type card – with 24 hour concierge service, travel insurance, purchase protection etc.

Verdict – Couple of things have shaped my view on the BOA Accolades Card. Firstly, I think the WorldPoints Program is inferior to the Membership Rewards Program. Their points expire in 5 years, unlike MR points, which do not expire. You also cannot transfer points to frequent flier miles (which many high end cardholders would like). You also do not get any upgrade in status for any hotel frequent guest program.

Aside from the reward program, I do not think the Accolades has enough additional features to really challenge established cards like the Platinum and the Chairman Card. Aside from the complimentary Priority Club Membership, I think it really falls short.

Hence, I think for those looking at a high end card, I still prefer my good old Amex Platinum Card.

Among the true reward card gurus, there are several loopholes that people have been exploiting to rake in some seriously high value rewards.   In the last few weeks, some of the loopholes appear to be closing, albeit slowly and inconsistently.

CitiCard Churning

This is the process of applying for multiple cards in order to reap the sign up bonus.    For example, the American Airlines card offers 30,000 miles after your spend $750.    Unlike most cards, they do not prohibit you from taking advantage of this offer multiple times.    Some have gone so far as to receive dozens of sign up bonuses.    I can’t possibly mention this tactic without warning people that this is an extremely risky strategy from many, if not most people.   If having too many credit cards causes you to overspend, or even to not pay every bill on time and in full, do not even think about this.    The crackdown seems to be that CitiBank is no longer automatically accepting everyone all of the time.    Furthermore, there are rumors that the annual fee will not be waived for “new” cardholders starting next year.

US Mint Dollar Coins

The Mint has been offering dollar coins for face value with free shipping for some time.  There is a series of Presidential dollar coins, as well as one commemorating Native Americans.    It has been possible to order these coins on your credit card, and to deposit them in your bank account, reaping the miles or cash back.    Recently, a notice was placed on the web site indicating that these transactions may be counted as cash advances, whereas before they were processed as purchases.   Also, some people received a letter saying  that people were abusing the program buy purchasing these coins with intentions other than circulation.    There were no threats in the letter, as this practice is perfectly legal in every way, but it was an ominous sign that someone, somewhere was not happy with this practice.    Others have pointed out that credit card companies are entitled to code any transaction the way they want to, the Mint has no control.   Furthermore, one can request that their credit card company turn off the option for cash advances, or set the maximum amount to zero.   In this instance, it should be impossible to process a coin order, if you credit card company decides it is really a cash advance.

Chase British Airways Deal

I have written about this deal that not only offers 100,000 British Airways miles as a signup bonus, but also offers a free companion award ticket after $30,000 annual spending in a calendar year.   This is a great deal, but they are not accepting a lot of people who normally get any credit card they apply for.    This seems to be one of the most restrictive offers out there, with rejections going to people with high credit scores, but a few too many recent inquiries on their credit report.    It is not known how long the 100,000 bonus mile “limited time” offer will be around, although the terms of the companion ticket seem to assume that that offer is a long term deal.

What Does This Mean?

People who read a lot of mainstream press reports will see this as a sign that the credit card companies are truly being forced to limit reward cards in anticipation of the CARD Act becoming effective.    I don’t buy it.   If that were true, why would Chase and British Airways be offering a new credit card with unprecedented rewards?    There is no indication that Citi will stop offering reward cards, just that it is beginning the process of closing an existing loophole.   This is sad for those who have been successful in exploiting it, but seasoned reward card veterans will recognize this is part of the life cycle of a deal.   A loophole or any other great deal is initially discovered and revealed on messageboards like FlyerTalk, or travel and credit blogs, like this one.   As people exploit it, the deal becomes more and more popular.  Eventually, someone at the credit card industry notices the problem, and ultimately makes some change to close the loophole.  Sometimes this process takes years, as the CitiBank churning strategy has been around for several years now.    Other times, the cycle takes days, like the “Big Delta Promo” last year that supposedly was not supposed to exist in the first place.  In the case of a airfare misprint, the cycle can take hours or even minutes from discovery until shutdown.  This is the natural cycle, and it is continuing to this day.   There is no sign that these deals are disappearing forever.    I am confident that there will always be a new deal on the horizon.

The important thing is to be prepared for these deals.   Keep a high credit score by paying all of your bills on time.    Keep a low utilization rate, that is spend far less that your availible credit.   Keep a few cards for a long time.   Having a longer average credit history helps your score.  The most important thing is to always pay each bill in full; never pay interest on your credit cards.    As I have said, many, many times, if you pay interest, you should not even be in the reward card game at all.   If you have an outstanding balance, your only priority should be paying that off, and find a credit card with the lowest interest rate to help you do so.    Reward cards will incent you to spend more, and they do not have the lowest interest rates.

Follow these simple rules, and you will be ready to pounce at the next great deal.

The Citi Chairman Card is Citi’s elite and prestige credit card. It is by invitation only, or rather as Citi puts it, you have to be solicited! The reward program is based on Citi’s ThankYou Network. I spent quite bit of time with the folks at Citi Chairman Membership Unit and managed to get quite a bit of information like the premium travel service that is not available on their website. For this review, I’ll list out the card’s feature and then compare this with other cards.

How you earn points – The Citi Chairman Club allows you to earn one point for every dollar that you spend on the card. In addition you earn one point for every mile that you or your partner flies (as long as the ticket was booked using the card). The reward program (like I mentioned earlier) is based on Citi’s ThankYou Network Redemption Rewards. For airline tickets and travel items (which I think is what most elite card holders look for), the ThankYou Rewards require that you redeem them by using their travel site (which is actually powered by expedia.com). You can then use your points or a combination of points and cash (if you do not have enough points).

I judge elite cards by their travel rewards because that is what most people look out for. Below is a list of travel benefits and rewards.

Premium Airline Program – The Citi Chairman Card has a premium airline program that changes every year. The information here is valid only until the end of the this year (ie 2009)

Fees – There are two versions of this card, a MasterCard version and an American Express Card version. The MasterCard version has a $400 annual fee while the American Express version has an annual fee of $500. At this point, I’m not sure of the differences that warrant the fee difference, but will inform you once I find out. Additional card fees is $100, though you can issue a card with less benefits for no annual fee.

Comparison to other cards – Comparison with high end cards (like any rewards card) is difficult because the reward programs are different. In the case of the Citi Chairman Card, I think you have to look at how you can redeem your rewards. The ThankYou Network requires that you redeem travel rewards with their expedia.com powered travel site. The great thing about this card is that you can earn points also with the miles you fly on and not just with the dollars you spend.

Other cards like the Amex Platinum and Diners Club allows you also to transfer points to frequent flier miles. The Citi Chairman Club does not have this option.

Citi also has a premium airline travel package that is interesting. As you can see from the details above, you can get discounts with certain airlines on international routes. The American Express Platinum Card also has an international airline program where you can get a complimentary companion ticket if you buy a full fare business or first class ticket. Their airline partners can be found here. The one thing to bear in mind is that programs like these change every year because credit card issuers have to negotiate with their partners again.

Otherwise, the Citi Chairman Card has got very good features which rivals the best high end cards. For example, you get Gold membership to Hilton HHonors. Amex Platinum gives you Gold membership to Starwood. They also give you annual membership to Priority Pass (which is very useful for the frequent traveler).

Verdict – I think the Citi Chairman Card is a pretty good card and will suit some folks more than others. To get the most bang for the buck on this card, you have to be a frequent traveler. If you travel abroad in business class and use the airlines that are part of their premium airline travel partner, then this would be of great value (though you still have to compare savings with discounted business class tickets). You also should not be the type that likes to earn miles for a particular airline or airlines and transfer them between airline alliance partners because that is simply not how the ThankYou Rewards program work.

If you also stay at the Hilton HHonors, the the automatic gold membership would be a bonus.

However, if you do not make use of their international airline partners, then Citi also offers an alternative in the their Citi® PremierPass^SM Card, which allows you to also earn points on the miles you fly as well as the dollars you spend on the card. You will not get the other elite type benefits, but the travel rewards (with the exception of the international premium partners) is the same.

The Visa® Black Card by Barclays Bank was introduced in the beginning of the year. But I was hesitant to really review this card because I do not have the card. I thought about getting the card but given the fact that every one is coming up with new cards after the CARD Act, I thought I’d save some bullets. The main reason I was hesitant to review it is that they did not include their airline reward program on their website. In fact, they still do not put their rewards on their site so I do not know how their merchant partners are for their gift cards. But for folks looking at high end cards like this, gift card rewards are the least of my worries. But finally, they have now explained how their airline program works on their FAQ page. Armed with this information, I think I’m equipped with enough to form an informed opinion of this card.

I will first list their rewards and compare them with other high end cards and finally write my views on the card and who it is suitable for.

Airfare – In my opinion, this is the most interesting aspect of the rewards program. Cardholders can redeem points for airfares with no restrictions or blackout dates. But the key question is what is the exchange ratio?

The minimum points required in $300 and that is good for a ticket costing up to $500 – making the ratio 1.67:1. There after, in the ticket cost exceeds $500, you have to use (a minimum) of 5,000 points that is worth $50 (1:1 ratio). I’ll elaborate more on this in my verdict.

Hotels – You can exchange points for hotel stays.

Car Rentals – You can redeem points for certificates at Alamo, National and Hertz.

24 hour Concierge Service – Cardholders get access to a 24 hour concierge service.

Cash Back – You can choose to redeem points for cash on an 1 for 1 basis (that means you earn 1% cash back). You can earn unlimited cash back.

Priority Pass – Visa Black Card holders will receive a Priority Pass Membership which allows for two complimentary lounge visits each year.

Gift Cards – Like most reward programs, you can also exchange rewards for gift cards.

Fees – Let’s get this out of the way as well. As a high end, prestige credit card, The Visa Black Card has a $495 annual fee. Each additional cardholder will cost $195. You can even a 0% balance transfer offer and teaser (you would think that anyone who applies for this card will pay in full).

Comparison vs other cards – So how does the Visa Black Card stack up versus other high end cards and who is this card most suitable for?

In my opinion, the best comparable would be the Amex Platinum Card because of the annual fee. Other cards in a similar annual fee range include the Citi Chairman Club. Let’s start with the non-reward features first. The features that the Visa Black Card offers are quite standard among elite credit cards these days. Things like 24 hour concierge service, warranty extension, purchase protection, auto rental collision waiver are all common features in many good credit card.

The Amex Platinum has more features like their international airline program, their private jet membership program, automatic starwood preferred guest gold membership. Amex Platinum also have their own shopping mall where you can earn extra points by shopping through their online portal. And because Amex sponsors lots of sports and musical events, card members get early notifications of the best seats in town. The Citi Chairman Card has international airline partners where you can get discounts on their airlines.

So in terms of common features, I find the Visa Black Card slightly lacking compared to the Amex Platinum and the Citi Chairman Card. But whether it affects you depends on whether you use those features. If you do not travel internationally, then it does not matter!

In terms of rewards, this is a harder call simply because the reward program and how you redeem points for travel are different. In the case of Amex and their membership reward program, you have two choices on how to redeem points for airline travel. You can either transfer points to frequent miles of their partner program or use points to book flights directly with the Amex Travel site which is powered by Travelocity. The Citi Chairman Card reward program (ThankYou) requires that you book with their travel site (which is actually expedia.com) and redeem points that way (1:1 ratio – as in 100 points is worth $1). Chase’s new Ultimate Rewards program allows you to either book with their travel site (much like Amex or Citi) or you can also book with any other travel agent online or offline and redeem points for a statement credit.

The Visa Black Card travel rewards is a throw back to the good old days of rewards where a certain number of points gets you a ticket of up to a certain value. So in this example, if your ticket prices normally costs $400-500 dollars, then you will only use 30,000 points. If you have booked your tickets with Amex, Citi or Chase, you would have needed at least 40,000 to 50,000 points. But if your ticket normally costs only $150, then you would still need to use 30,000 points. In this case, this is not a good proposition.

Verdict – When I look at high end cards, the most important thing to me are the travel rewards (especially airline rewards). I doubt any serious cardholder exchange points for gift cards and other merchandise stuff! The Visa® Black Card has a travel reward system that is different from other high end cards and will suit travelers who travel frequently on flights that cost between $400 to $500. It is in this range that you get the most bang for the buck on your reward points. If you fly southwest and your ticket costs around $200, then this card is not for you.

If you are the sort of person that has multiple frequent flier programs and like to use airline alliance to get the most bang for the buck, then this card is not for you. Perhaps an Amex Platinum or Starwood Preferred Guest American Express Card is a better bet. If you only fly one airline, then perhaps, getting that particular airline credit card is better.

In terms of other features, I think that the cards like the Amex Platinum has got more features although you may not necessarily use it. For example, I have not yet used their international airline companion ticket program. Neither am I going to use their private jet program anytime soon. I have taken advantage of events they have sponsored and got great seats for those though. But like I said, only you can decide which features are important to you.

One thing that this card has going for it is simply that it is a Visa and you will be assured it will be accepted in more places than an American Express or a Diners Club. The Visa Black Card also has a very cool black titanium card design. One cannot understate the value of the prestige a high end card carries. For those working in industries where image is very important, the Visa® Black Card is a card to consider.

I came across the Dave Ramsey phenomenon in response to a reader’s letter. More recently, I just read an article in The Atlantic magazine about him and his philosophy.    I actually receive the print version of The Atlantic, which really allows me to thoroughly enjoy their writers in places, shall we just say, where the computer doesn’t go.

Anyways, author Megan McArdle attended Dave Ramsey’s seminar, and even gave his methodology a test.   Her results were fairly positive.     Now, I haven’t attended one of his seminars or read his books, so I will be relying on her experiences.

The Philosophy

Ramsey truly hates debt.    He preaches giving up credit cards and all other forms of debt, with the exception of a 15 year home mortgage.    One of the things that I did not know about him, was that he is very similar to an evangelist.    He quotes extensively from the bible, and McArdle compares his meetings to a prayer meeting.    His methodology is to withdraw all of the money you will spend in a month, and put them in envelopes.    In this way it is thought that you will spend less money.

My Take

It is hard not to agree with Ramsey’s goals.    We agree that almost all debt is bad.   To me, credit card debt is one step better than pay day loans, but not by much.      I also tell people to avoid debt on just about all depreciating assets, especially cars.    On the other hand, I don’t have that much problem with debt on appreciating assets like your home or your education.    Sure, we just passed through a very short, unique period where home prices underwent a correction, however over the long term, homes do appreciate in value quite reliably.

Where Ramsey and I disagree is in both our methodology of reaching the debt free goal, and our approach to promoting our philosophy.   Dave would have you cut up your credit cards, as the picture in the article clearly shows.   I personally feel that the benefits of using a credit card as a method of payment outweigh the psychological risk of overspending.   For many people, Ramsey’s advice makes sense, as they have used their credit cards as a method of financing purchases they cannot afford to pay in full at the end of the month.   There is the key difference between method of finance and method of payment. People like myself who use credit cards as a method of payment, pay their bill in full every month.   They use other means to budget their money.   If you ever find yourself tempted to use your card as a method of finance, Ramsey’s all cash solution is a reliable, if brute force method of kicking that habit.

When I say that the benefits of credit cards outweigh their risks, what am I talking about?    First, when cash is lost or stolen, it is gone forever.    When your credit card is lost or stolen, you loose nothing.   My house was burglarized recently, yet little was taken.   The police pointed out that they were almost certainly just looking for cash.   They didn’t find any as the only cash I ever have is in my wallet.    I also enjoy the charge back ability of a credit card.    Frequently, just the threat of a charge back is enough to convince a merchant that they should do the right thing.    Of course, the cash back rewards don’t hurt.    I am saving 2% or more on everything, all of the time.   That really adds up over the course of a lifetime.   Finally, credit cards simplify my finances.   I know when my payment is due, I don’t have to worry about each withdrawal and each check, as the money comes out of my bank account in one payment to cover many expenses.

The other big difference between Ramsey and I is how we get across our message.   McArdle paid $220 for front row seats to hear him speak, while you can read my blog posts for free.   Frankly, I have a hard time trusting anyone who would thinks it is a good idea to shell out that kind of money for a financial lecture.   Another huge difference is that Ramsey is giving his advice in a highly religious context.   According to McArdle, most of his attendees are evangelical Christians, and his talk concludes with a plea to get to know Jesus.

It so happens that I myself am not a Christian, but I do have the utmost respect for Christians and their faith.   That said, I just don’t see the point in mixing religion and personal finance.   I don’t pretend to have any crucial insights into spirituality, just some good advice on how to use credit cards for your economic benefit.    I like to think that my advice applies equally to people of all faiths, or of none.    I am not sure Ramsey can make the same claim.

I will, however,  conclude with a religious analogy.   It is said that different religions are just different paths to the same truth, or different ways of worshiping the same god.    Likewise, Dave Ramsey’s method of achieving financial security and independence, like his religion,  is different than mine, yet I think that in the end we both share the same goals.

I have a chase credit card that has a promotional interest of 5.99 2.99 3.99 . That was for the life of the loan. They send me a letter that now they are going to charge me 5% of the loan instead of the 2% which made the payment out of my reach. The option they gave me was that those interest rates listed above were going for 7.99% until 2011 then it will go up to 11.24% and my payment would stay the same I had no chose then to stay with the same payment amount. Can thy do that?

Ms. Lupe Gutierrez

Answers – Ms Gutierrez, yes credit card companies can do that because it states under the terms and conditions that they reserve the right to change your interest rates. The balance transfer for life offers (which used to be offered quite a bit) unfortunately is one of the things they wished they had not offered because it is probably unprofitable for them to do so.

Having said that, they are actually offering you a decent deal because they aren’t many folks who get approved for balance transfer deals these days. But raising your minimum payments may also affect your budget if you have no room at all. My advice would be to take their offer and redo your budget to factor in the extra minimum payments.

I have to commend Len Penzo for finally speaking out for the crowd that is “not against credit cards” or do not think they “are evil” with his very time post stating that he will not be cutting up his credit card. Prior to that, Adam Baker has written a post on how unethical credit card companies are. Even my good friend Matt Jabs is asking folks not to get cards just for rewards because the merchant fees actually make all goods more expensive to the tune of maybe say 2%.

My Stance – Firstly, if you do not know already, check out the credit cards that me and my staff use (for full disclosure). For me, I belong to the “camp rewards”. I pay my bills in full every month and I also do pay an annual fee for my card.

I do realize that there are folks who hate credit cards, had bad experiences with them (by getting into debt) and swear never to use them again. Folks like Brad Chaffee who has just got rid of his credit card. I respect that decision. I myself have weakness for certain stuff. While I have never carried any credit card debt, can’t be bothered to gamble (too troublesome), I can’t say “No” to candies I love. I tend to buy the most expensive electronics! So for those who can get carried away with credit cards, don’t use them.

But the “anti credit card folks” don’t accept this argument” – If everyone was reasonable, this would be the end of the story and it is best summarized by JD Roth who says do what works for you.

But Adam has gone into the territory of saying credit card companies are “unethical”. To quote him: “For me, the credit card industry is on the same level with the gambling and tobacco industries. I don’t mind the rare celebratory cigar, nor do I object to mindfully spending some of the entertainment budget at a casino.

However, the blunt truth is all three of these industries derive a large percentage of their profits from a select group of people who are caught up in destructive, cyclical habits. They feed off their respective junkies.”

By the way, he left out alcohol (does he drink the occasional drink?)

The huge problem with this argument is that applies to almost every industry. Here are some examples.

Is the jewelery shop that sells diamonds unethical because diamonds add absolutely no value to the economy other than vanity? How about other high end brands that simply exploit our vanity?

How about restaurants that serve ridiculous portions and contribute to our nation’s health problems (most heart attacks in the world?). MacDonalds’ for selling cheap processed meat and process chicken fingers? Or the diner that slaps loads of fat laden bacon! Preying on the lack of discipline among those who are overweight? Hey, we don’t need to go to restaurants right, just cook at home! Could even follow some pf bloggers recipe!

Gym owners – because they know that a large portion of their paying members do not use the gym anyway? So are they unethical because they know folks sign up in January and forget about their new year’s resolution by February and still pay their membership fees. A business based on people’s needs but also on a lack of follow through?

Workout programs and DVDs! Everyone knows that only a small percentage of folks that buy workout DVDs actually follow them, diet and achieve real results. Are these business unethical because the majority of their customers probably bought their videos on impulse?

How about food manufacturers like Kraft. Maybe they should not make mayonaisse? Too fattening? Contributes to the nation’s health problems!

How about every tourist shop that over charges their goods because they can get away with it? And they cause folks to overshoot their vacation budget? Or the ice-cream vendor that charges you $2 for an ice-cream at the zoo?

Perhaps we can lump online stock brokers into this ‘unethical” category as well since “academic studies” have shown that the probability of individuals beating a “benchmark return” is really small!!

For those who hate credit card companies, including my friend Matt, the various reasons cited are credit card companies intentionally charge late fees, raise interest rates for no good reason. I have a few thoughts about this.

When credit card companies (ie Amex, Visa and Diners Club) first started in the 50s and 60s, all they issued was charge cards. The criteria to get those cards were strict. The on top of that, you have to pay an annual fee and pay in full but in return, you get the convenience of not having to carry cash all the time and earning rewards. In return, these companies got a nice cut from the retailers and merchants (and nothing wrong with that since we all have to make a living). In return, the more popular these cards got, the more retailers and merchants would benefit. Think of the time centuries ago when you actually have to carry silver coins! Carry a lot and the risk of robbery is great is the good old days.

As these pioneer companies got bigger, they realized that they could spread their product use faster if they allowed banks to issue their own cards but did the back end processing for them. Soon banks began issuing credit cards rather than charge cards and allowed cardholders to carry a balance.

Then, we reached a point where every bank was issuing their own credit cards. We reached a point in what economist would call perfect competition. And we know how things went from there.

I don’t know. Credit Card companies did not start out trying to make a living off charging late fees. In fact, in the corporate world, if a company issues debt and defaults on just one, it technically means that they have defaulted on all their debt and creditors can then pursue them. The term for this is cross-default. It is a standard term in any debt offering (which by the way makes the terms and conditions issued by credit cards a piece of cake). When a company is a day late in their bond interest payments, investors like PIMCO or Blackrock or even boutique hedge funds are not going to say: “It’s OK”, we’ll give you another day or two. They are going to take action and if it was due to some banking error, corporations have to pay some fee to creditors to prevent them from calling a default. It’s a tough world when you take on debt!

Also, as a corporation gets bigger, IT becomes a big challenge. Yes, it is scummy that they consider your payment late even if the check is dated before the payment deadline. But look at what happens to TD bank! Customers finding out their balance is zero, or that they have gotten an extra $200 in their bank accounts. When credit card companies merge, IT systems can really screw up customer service (see what happened to WAMU credit card holders when Chase took over them).

I’m going to state my view: I do not think credit card companies want to be making money mainly from charges and late fees. To think that would be insulting to folks in their senior management. OK, you could fault them for everything that happened in 2008 and their loose lending practice. But remember that many of them (or most of them) have MBA from ivy leagues. They can make mistakes but they are certainly not stupid. If you were the CEO of a bank, would you want to be making the majority of your credit card income from late fees! Come on, that is simply not sustainable.

If you start a gym, you probably did it with good intentions. You wanted the best gym environment and a core of loyal clients who value the workout environment. But what if you find that as your gym grows that only 25% of the people come to workout. The rest simply pay up, come for a month and then disappear (no follow through). Does that make you unethical as a gym owner? Would you give refunds to those who do not come but keep paying?

Or what if you sold a fitness DVD workout? Truth is that probably only 10% of the folks who buy your workout will actually do it and get great result. Does that make the producer and seller of DVD workouts unethical because the majority of folks who bought them do not workout.

Sports teams charge a lot for their ticket prices. Once you are in the stadium, you are subjected to ridiculous prices for food and drinks and not to mention their merchandise! Are sports teams preying on our love for the team to jam us with “high priced” products unethical? After all, a shirt’s a shirt and to pay $275 for a jersey with a name written at the back?

MacDonald’s target their ads at kids. They make marketing arrangements with movies to give their merchandise with every kids meal! They make your kids want to go to McDonald’s and eat their unhealthy processed meat! Is that unethical?

Places like Costco deliberate design their stores so you have to walk the whole place! The result, very few people leave without buying more than they planned when they entered the store. Is that unethical?

Nutrisystems’s diet system consists of nothing more than smaller portions of junk food like frozen pizza in smaller sizes, smaller bag of potato chips. Is that really ethical? Isn’t that a little deceptive? Well, I guess you could still lose weight eating “less junk food but still eating junk food!”

Many kids get addicted to video games and flunk high school. Does that make the whole video gaming industry unethical?

I think a lot of the unhappiness directed towards credit cards and perhaps some of the areas I mentioned can be traced to the fact that these companies grew too big. When a company grows too big, things that did not seem important all of a sudden becomes very important indeed.

MacDonald’s did not get movie toys as gifts for kids meal until recently. But when you have saturated the US market and are looking for “incremental growth”, I guess you think of every crook and nanny to increase your bottom line. To increase revenue, Norton and all other security suites charge $59 for 3 computers! I don’t have 3 computers and only have 1, but I can’t buy a license for one at one third of the price! Is that ethical?

Many folks also claim credit card terms and conditions are too difficult to read. Really?

Actually, contrary to many folks, I think reading a credit card’s terms and condition is one of the easiest things. But speaking about this matter. Let’s look at some other products with more complicated terms and conditions.

Mutual Funds and ETFs – Have any of you actually read the terms and conditions of any ETF or mutual fund you bought?

Terms of Agreement on software – Has any of you ever read the terms of agreement on a software you downloaded? Do you understand all the cookie jargon.

Cabla, Phone and Internet fees – Yes, only $49 a month for 1 year. But has anyone realized that cable and phone companies do not even disclose the “fee after the introductory period”! At least credit card companies do!

When you brand an industry to be unethical, very often, that view is shaped by one’s experiences. Adam’s view is shaped (at least partially) by his experiences with racking up debt. So is Matt. Matt has been cooled headed enough to keep a credit card and take responsibility for getting himself in to debt. Kudos to that. But to put a blanket “this industry is unethical” may be to blind ourselves to the fact that “the particular industry” may help someone people. I used to bitch about the high fees of sub prime cards. But then I hired a blogger (who is no longer working for me) who had been through bankruptcy and she was pleased she got get a high fee sub prime card to rebuild her credit! She did not mind paying those fees!

But people who have been scammed by say the internet with things like Acai Berry reverse billing fraud or “make money at home with google” and numerous other get rich quick scheme may be very wary and distrustful of buying any thing from the internet. And that would be a shame because there are great sites like Matts around that benefit so many folks.

For all the years that I have used the Blue Cash card, I’ve made over 2% in cash rebates and over $1000 cash back every year! Is that not frugal. But I guess folks who hate this industry will never see this benefit because they close their mind to the fact that credit cards can be useful.

Being ethical can have it’s cost? Why? Because the majority of people do not think about it or bother about it. In a competitive world where price and costs matter, firms will do anything to cut cost. Diners will get lower quality meat cuts to reduce cost. The “ethical restaurant owner” who wants to serve healthy food and use only olive oil will have a tougher time because of higher cost. And folks still want their greasy bacon and egg sandwich even though their heart is crying out load for them to stop! Consider how much more expensive are organic food than regular food. Goes in a cycle, the more expensive the item, the less people buy. They less people buy, it will not be economically feasible to reduce prices. You could buy a cheap computer from Best Buy. But to make it cheap, hardware makers sign marketing agreements with software companies and load up your computer with software you do not need! And to keep prices lower, they outsource tech support to India! (nothing against Indians but I’m sure Indians would not want tech support from Southern Texas cos they wouldn’t be able to understand us either!). Or you could buy from a great firm like Puget Systems, who custom makes your computer, install only necessary programs, does not upsell you, and has tech support in the US! But it cost more!

If every personal finance bloggers recommend getting a charge card, which has an annual fee and also requires full payment every month, everyone of us may be better off! Credit card companies earn their annual fee and there is much less default risk for them! There is no preset spending limit, so you would not have your limits cut! But hey, who am I kidding. Every pf blogger will say “get a no annual fee credit card instead”! But look at it this way, the more free stuff we demand and expect, the more creative ways corporations have to sell to us to make money. So you could sign up with mint.com for free and get ads and “questionable recommendations” for credit cards and other loans! That is what you get with a “free” and “cheap” mentality, corporations needing to “upsell” you with “backend poducts” to remain profitable! And this is where the temptation to cross the line comes into play.

For every person like me who is willing to pay an annual fee for my Amex charge card, there are probably 20 people who would never want to pay a fee for a credit card. For every person willing to spend more on organic food and healthy food, there will be more who just want their cheap greasy bacon and cheese bagel for breakfast or their Big Macs! For every person that values customer service and wants to buy a great computer, there will be dozens others who will settle for the “cheapest computer” that outsources tech support to folks who have trouble understanding us! For every Matt Jabs that realizes what a time waster cable TV is, the are dozens who would get the latest HD Plasma TV and veg out in front of the tube! For every serious person like Adam who is looking to build his blog and internet projects, there are dozens of people who are addicted to and just want to play their latest wii game (does that make wii an unethical company – after all, all they do is make young kids addicted to games?).

At the end of the day, most people know that they are doing or consuming stuff that they should not. Most of us know we should eat healthy food but don’t. We know we should pay our credit card bills in full, but many don’t.

But can we make a blanket statement and say credit card companies are unethical and say they belong to the tobacco and gambling group? Should we include all diners that serve greasy food and indirectly cause American to have the highest rate of heart attacks? Should we include video game manufacturers, though whose main aim is entertainment, ends up causing addiction to games and as a side effect destroys marriage and lose productivity at work?

The problem with labeling the credit card industry unethical is that you might as well label the capitalist system as unethical! Businesses are in the business of “selling their stuff”. We as consumers are responsible for doing our own research and figuring out if a product is right for us and how to use them!

But I guess the real problem I have when some one writes a post like that is this : it appears that the sole purpose of most post like these is just to get attention (or it could be unintentional and still get all the attention)! Write a anti credit card post and rest assured that frugal dad will stop by and pat you on the back. But if you really give it some thought, this line of reasoning would lead you to live like the Amish!.

So to all bloggers out there: If you want to write another posts about how evil credit card companies are (and there is nothing wrong with that), then please also write about the restaurant industry, the gaming industry, the “online broker” industry and how “unethical they”. And heck, you should be against Lending Club as well since it encourages folks to borrow and give them another outlet now that banks are starting to tighten the screws! Write about how the Federal Reserve printing money is unethical.