At the moment the gas prices can only be described as either astronomical or extremely astronomical and the result is a steady increase of applicants for gas rewards cards. Among these cards there are some that are not given enough credit (no pun intended). PenFed Visa Platinum Cashback Rewards Card For those who know a [...]
Everybody knows about reward credit cards that let you accrue points or miles toward your next getaway. But there are other ways your credit cards — and how you use them — can save you money. You can stretch your summer vacation dollars with these tips — none of which require you to open up [...]
About 25% of American consumers had bad credit as of April 2010, according to the credit-scoring agency FICO. As of March 2011, Americans were also revolving over $796 billion in debt – almost all of which was credit card debt – reports the Federal Reserve. Clearly people are having a difficult time managing their personal [...]
If you’ve ever spent your way into a massive pile of credit card debt, the answer might be “none!” But for everyone else, the answer probably doesn’t come as easily. TUTORIAL: Types Of Credit Cards According to the Federal Reserve Bank of Boston’s 2009 Survey of Consumer Payment Choice (published April 7, 2011), 72.2% of [...]
At the moment the gas prices can only be described as either astronomical or extremely astronomical and the result is a steady increase of applicants for gas rewards cards. Among these cards there are some that are not given enough credit (no pun intended).
PenFed Visa Platinum Cashback Rewards Card
For those who know a lot about of credit cards, this card may not really ring a bell, however, with it you can get up to 5% discounts on your gas purchases and there is no ceiling on the rewards. When you make any other purchases you will be eligible for an impressive 2% rebate in selected supermarkets and 1% elsewhere. Something to note with the PenFed card is that there are two one-time payments – $15 fee upon signup as well as another $20 account fee.
BP Visa Card
This card gets hardly any publicity outside BP stations. Some people have attributed this to the oil spill that occurred on the Gulf coast but the truth to this allegation cannot be quite established. This card offers a hefty 5% discount for gas purchased at BP gas stations. There is also a 2% discount on eligible travel and dining as well as a 1% discount on any other purchases. A major advantage of this card is that there is no ceiling on rewards and it has no annual fee.
Fort Knox Federal Credit Union Visa Platinum Card
People living outside of Kentucky may not have heard of this card which is arguably one of the best cards in the market. Card holders are subject to a 5% discount on gas and it does not have any limit on the amount of rewards. It is part of a credit union which means before you can get a card you need to enroll as a member and anyone living outside of Fort Knox can also apply as long as you become a member of the American Consumer Council.
Everybody knows about reward credit cards that let you accrue points or miles toward your next getaway. But there are other ways your credit cards — and how you use them — can save you money. You can stretch your summer vacation dollars with these tips — none of which require you to open up a new credit card account or enroll in yet another loyalty program.
1. Smart travelers — especially those whose trips take them outside U.S. borders — know it’s better to have a credit card that doesn’t tack on foreign transaction fees, which generally add 3 percent to the price of a purchase made overseas. But using any credit card will get you a better exchange rate than either getting cash from a U.S. bank before you leave or exchanging money when you reach your destination, according to Odysseas Papadimitriou, founder and CEO of Evolution Finance. He crunched the numbers and compared those three different ways travelers can exchange funds. “When you compare three different ways of exchanging cash, what we found out is there’s almost a 15 percent difference,” he says. Currency exchange kiosks and storefronts were the most expensive, while getting foreign currency from a U.S. bank varied widely in terms of the exchange rate offered. While all were more expensive than the credit card exchange rate, some were within 5 percent of that rate, while others were nearly as high as exchange bureaus. The full report is here.
(MORE: The 6 Best Travel Reward Credit Cards Right Now)
Also, don’t ever use a credit card to get cash from an ATM. Cash advance interest rates are sky-high and they kick in the instant the cash is in your hand; there’s no grace period the way there is for purchases with the card. Plus, you’ll probably have to pay a cash-advance fee on top of that. Just don’t do it.
2. Speaking of overseas travel, Papadimitriou says you’ll get a much better exchange rate if you have transactions processed in the local currency as opposed to U.S. dollars. Visa and MasterCard’s exchange rates are good, he says, but if a cashier performs a currency conversion before he or she processes your payment, you lose access to that exchange rate. Instead, the merchant probably uses a rate similar to that of pricey cash-exchanging kiosks — or even more if they’re unscrupulous and want to pad their bottom line. There’s no way to know what exchange rate you’ll be stuck with if the store converts your payment to dollars, but you can be sure it’s not nearly as good as what you’d get from the payment processing network.
3. These days, a lot of cards have discount programs for dining at certain restaurants, event tickets, theme park admissions and other types of activities. Do some research before you leave, and maybe you can score a cut-rate theme park ticket or dinner at a chi-chi restaurant. “I’d recommend consumers look to their credit cards for those kinds of instant savings at the places they’re already going,” says Laura Gingiss, spokesperson at Discover Financial Services.
4. In addition to discount programs that let you save money up front, credit card reward programs let you earn points or miles at a faster rate. In general, credit card rewards are a double-edged sword because they can help you justify purchases you wouldn’t otherwise make with the promise of an extra few percent off or a cache of bonus points. But if you’re already planning on shelling out for a vacation, take advantage of any rewards for which you’re eligible. “Always check the card’s online shopping portal for online and in-store bonus rewards that can be used for your next vacation or getaway,” says Sukhi Sahni, spokesperson for Capital One. She’s referring to merchant-funded reward programs, which have increased in both number and scope recently. Some even include discount travel-booking sites and major hotel brands. In addition, it’s worth enrolling in any short-term accelerated rewards your card might offer, since many let you earn a higher number of points or miles for purchases in travel-related categories like gas and hotels during the summer months. Just watch out for caps on how much you can earn in these accelerated categories, says Beverly Harzog, credit card expert at Credit.com.
(LIST: 9 Tips and Tricks for Saving on Travel This Summer)
5. For those of us who don’t travel often, it’s likely we have credit card benefits we don’t even know about, says Leah Gerstner, spokesperson at American Express. “Really think about more of the hidden benefits,” she says. For example, a number of cards — generally airline-affiliated or generic travel cards — offer airline credits that eliminate fees for things like checking bags, or ordering food and watching movies in-flight. “Those kinds of things add up, especially if you’re a family of four traveling,” Gerstner says. In addition to eliminating those annoying — and pricey — baggage fees, Credit.com’s Harzog says many cards include other travel-related perks like rental car insurance coverage, breakdown assistance and purchase protection (in case that terrific souvenir breaks the second you get it home).
About 25% of American consumers had bad credit as of April 2010, according to the credit-scoring agency FICO. As of March 2011, Americans were also revolving over $796 billion in debt – almost all of which was credit card debt – reports the Federal Reserve. Clearly people are having a difficult time managing their personal finances, and judging by the fact that the National Foundation for Credit Counseling’s 2011 Financial Literacy Survey found that 28% of American consumers admit to not always paying their bills on time, 56% don’t have budgets and 22% don’t even have a good idea how much they spend on housing, food and entertainment, the Great Recession isn’t all to blame. People therefore need to change how they approach spending. They need financial discipline, clarity and most importantly a way to lower the cost of debt. When it comes to credit card use, one strategy that promotes each of these things is known as the Island Approach.
What Is the Island Approach?
The Island Approach to credit card use was first introduced by the credit card comparison website Card Hub and is built upon the idea of compartmentalization. It suggests that consumers segment their individual financial needs (e.g. revolving debt, making everyday purchases and earning rewards) on different credit cards as if they are on islands. But how does this approach promote financial discipline, the eradication of debt and the maximization of rewards? Let’s find out.
Financial Discipline
According to the Island Approach, you should never revolve debt on the same card you use to make everyday purchases. Doing so simply makes it difficult to gauge whether your spending exceeds your means because purchases get lost in the shuffle of debt. If you use one card exclusively to make everyday purchases, however, a balance at the end of the month is a clear indicator that you are overleveraged and need to adjust your spending habits. Once you do so and settle into a routine of paying for your purchases in full each month, the presence of finance charges on this account – which should never have them – will serve as a resounding wake up call that you are spending too much.
Minimize the Cost of Interest
Isolating different transaction types on different spending vehicles helps you lower the cost of debt in four ways. First, it allows you to get the lowest possible interest rate for each transaction you plan on making. You may be able to find a single card with 0% on both purchases and balance transfers, but chances are that the card with the longest period of 0% APR on purchases is different than the card with the longest period of 0% APR on balance transfers.
Second, it lowers your interest-bearing balance. If you use a single credit card to both make purchases and revolve debt, your interest-bearing balance is your debt plus the price of your purchases. When you use separate credit cards, however, only your debt will comprise the interest-bearing balance because you pay for your everyday purchases in full each month and therefore never have an interest-bearing balance on your everyday credit card.
Third, if you are a small business owner, the Island Approach provides debt consistency. Business credit cards were not included within the scope of the Credit CARD Act of 2009, which means credit card companies can apply increased interest rates to existing balances held on them at will. They are legally restricted from doing so with general-use credit cards unless consumers are 60 or more days delinquent. Therefore, by using a general-use credit card to make purchases that result in an end-of-month balance and a business credit card for those that will be paid for in full by the end of the month, you can protect yourself from sudden cost-of-debt increases while at the same time still benefitting from unique business-oriented utility that business credit cards provide.
Finally, the Island Approach is conducive to favorable payment allocation. When you hold multiple balances on a single credit card, only the amount of your payment above the minimum gets applied to the balance with the highest interest rate, meaning you will likely pay this balance down slower and spend more on interest. On the other hand, if you hold each of your balances on different cards, you can strategically make payments so as to minimize the cost of your debt and pay it down faster.
Maximize Rewards
Like with interest rates, you’re likely to find a rewards credit card with pretty good overall benefits, but will you find one with the best travel rewards, the most lucrative gas discounts and the highest cash back earning rate on your biggest spending categories? Probably not. Under the Island Approach, however, such rewards maximization is possible. Simply evaluate your spending habits, identify your top expenses and get the credit cards with the absolute best possible rewards for each. This allows you to both earn more miles, points or cash and redeem them frequently, thereby mitigating the risk of rewards devaluation and ensuring consistent benefit. Don’t even think about rewards if you have debt and/or you don’t have excellent credit though because your focus should obviously be elsewhere.
Conclusion
Given the prodigious amounts of consumer debt and the unrestrained spending habits many of us exhibit, the status quo just isn’t cutting it. A change is needed, and for many of us the Island Approach is a great fit. Whether you need to get out of debt as quickly as possible or maximize your rewards, this approach to credit card spending can help you accomplish your goal. So take a trip to the islands, and credit card use will be a breeze.
Original story – The Island Approach To Credit Card Use
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If you’ve ever spent your way into a massive pile of credit card debt, the answer might be “none!” But for everyone else, the answer probably doesn’t come as easily.
TUTORIAL: Types Of Credit Cards
According to the Federal Reserve Bank of Boston’s 2009 Survey of Consumer Payment Choice (published April 7, 2011), 72.2% of consumers have a credit card. The average consumer who uses payment cards (a category that includes credit cards, debit cards and prepaid cards) has an average of 3.7 credit cards. Let’s examine why you might want your own behavior to match these statistics, if it doesn’t already.
Multiple Credit Cards and Your Credit Score
Your credit score is probably of your major concerns about having multiple credit cards.
Having more than one credit card can actually help your credit score by making it easier to keep your debt utilization ratio low. If you have one credit card with a $2,000 credit limit and you charge an average of $1,800 a month to your card, your debt utilization ratio, or the amount of your available credit that you use, is 90%.
Where credit scores are concerned, a high debt utilization ratio will hurt you. It may not seem fair – if you just have one card and you pay it off in full and on time every month, why should you be penalized for using most of your credit limit? – but that’s how the system works. To improve your credit score, you should avoid using more than 10-30% of your available credit per card at any given time, according to credit score expert Liz Pulliam Weston.
By spreading your $1,800 in purchases across several cards, it becomes much easier to keep your debt utilization ratio low. This ratio is just one of the factors that the FICO credit scoring model takes into account in the “amounts owed” component of your score, but this component makes up 30% of your credit score.
FICO cautions that opening accounts that you don’t need just to increase your total available credit can backfire and lower your score. (Paying these rates can impact your disposable income and investment returns. For more, see Understanding Credit Card Interest.)
Different Cards, Different Benefits
Having an array of credit cards can allow you to earn the maximum available rewards on every purchase you make with a credit card.
For example, you might have a Discover card to take advantage of its rotating 5% cash back categories so that in certain months, you can earn 5% back on purchases such as groceries, hotels, plane tickets, home improvements and gas. You might have another card that gives you 2% back on gas month in and month out; use this card during the nine months of the year when Discover isn’t paying 5% cash back on gas. Finally, you might have a card that offers a flat 1% back on all purchases. This card is your default for any purchase where a higher reward isn’t available. For example, you might be able to earn 5% on all clothing purchases in October, November and December with your Discover card; the rest of the year, when no special bonus was available, you would use the 1% cash back card.
Of course, you don’t want to go overboard – if you have too many accounts, it’s easy to forget a bill payment or even lose a card. The problems that can result from such an oversight will quickly ruin any savings you might have earned. (A decade before Mastercard or Visa existed, the first credit card company was introduced. For more, see How Credit Cards Built A Plastic Empire.)
This post provided by CardRatings.com.
What determines the best credit cards available? Is it the interest rate? An impressive array of merchandise and travel rewards? The lure of cash back? A large part of what determines the best credit card is you: your needs, your habits, and your credit history. These all can determine which type of card you should have, and which is the best credit card offer for you within that category. Looking at some examples of how different types of credit cards stack up will illustrate how you can compare the best credit cards.
Cash is king (usually)
Credit card rewards programs offer you the opportunity to earn airline miles, merchandise, services, or cash back. Which is best? In most cases, take the cash.
CardRatings.com looked at several prominent credit card brands with 5-star credit cards. With one exception, the reward credit cards examined offered no advantage for redeeming points directly for goods and services rather than cash.