-Video – Gas pump guy tore up his credit cards-
It seems like all of us have to learn hard lessons before we start moving in the right direction. The same goes for this guy who cut up all of his credit cards and vowed never to use credit again. I can guess with certainty that his credit cards weren’t rewards cards. Rather, they were the typical kind that people use for a rainy day, season or year. With cards in this category, balances aren’t quickly paid back due to the relatively low interest rates. Rewards cards are different because they are used for one thing: rewards. With high interest rates it’s assumed that people just pay the balance each month. Using rewards cards has become a serious past time for a small, enlightened minority who want to get the most out of their purchases. In this post I will cover some pretty nice cards in this group that could do more for your finances than coupons ever could.
If you are credit card shopping online, no doubt you have come across the Chase Slate card. This is a great card for balance transfers (0% APR for 15 months). But as for making purchases it’s pretty lackluster (13.24% – 23.24% variable). My feeling is that you would probably get an APR of around 18%. Then one day an emergency comes around and you use the card to pay a bill. Your new purchase is at 18% and you can’t pay it off until you finish paying off the transferred balance at 0%.
That’s the trap set for you with this and most other credit cards. People lack discipline and eventually end up walking into a hole. To highlight this, think of the fact that most bars and night clubs have an ATM machine. A drunk person doesn’t mind paying a $3 transaction fee at the spur of the moment. He fumbles around for a credit card and then chooses the slate card for a cash advance. From a sober vantage point this is obviously a costly mistake but some people do this over and over again.
There are, however, people who are disciplined and are gainfully employed. They’ll use the balance transfer option to take advantage of the 0% APR and refuse to make purchases. The big deciding factor of success is if you can keep your job for the long term.
The famous card that everyone associates with rewards is the American Express card. Based on the card’s terms, it’s perfect if you want free vacations just by making purchases. But vendors hate this card because they are ones paying for your vacations. I guess the trick to using the American Express card is to find a grocery store that accepts it and keep buying there because you get 2X the rewards points on supermarket purchases. You just have to make sure to pay off the balance at the end of the billing cycle to avoid the APR of 13.24% – 22.24%.
The American Express card is definitely not a balance transfer card because there’s no transfer teaser rate. Also, a 3% balance transfer fee makes it not competitive with other options. And whatever you do, don’t use this card for cash advances. Under the terms you will pay $5 or 3% of the transferred balance, whichever is greater. So based on a careful look at this card, you can rename it as your “Supermarket/Travel Card”. It’s perfect for retirees or those who have a lot of free time to see the world.
In this article’s second category of rewards cards, I’m going to address another card which could be more useful than American Express if used correctly. It’s the Capital One Venture card which offers a one time reward of 20,000 miles for spending over $1,000 in the first 3 months. That equals about $200 in free travel. I like really like the fact that these miles that you earn don’t expire. What also makes this a nice card is that there are no foreign transaction fees. Since the American Express card nails you with a 2.7% transaction fee, the Venture Card should be the 2nd card to keep for the consummate traveler.