Tuesday, June 17, 2014

Which is the Best Credit Card?

The one with no balance.

<rant>

I know some bloggers make a lot of money with credit card referrals, but enough already. I just don’t care which credit card is best. As long as I don’t carry a balance, don’t pay a yearly fee, don’t pay for any idiotic insurance, and get a little cash back, the rest is small stuff.

Find a way to cut back on some spending that isn’t improving your life much and you’ll come out much further ahead than picking some whiz-bang credit card.

The only exception I can think of is if you can use a personal credit card for work costs such as travel, get reimbursed and get to keep credit card rewards. Outside of that, all the excited talk about choosing credit cards is just a big yawn.

</rant>

22 comments:

  1. D'accord!

    I also don't feel comfortable shilling for credit knowing how many people misuse it.

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  2. The only credit card to have is one that you can pay off each and every month. Otherwise you can not afford to have a credit card.
    Now if you can pay it off every month and "spend" several thousand a month on credit then you might want to seriously consider your lifestyle and which type of card is best suited to it. It might be a money back card or a points card (usually for a fee).
    Personnally I have a points card costing me $125 per year. What does it get me? A free flight each and every year, "free" car insurance on vacation. So it is worth my while to have it. But that is because I get to put business reimbursed expenses on it for several thousand a month plus my own personal expenses. It is not fo revery one. Depends on how much you spend and as long as you pay it off then have at it.

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  3. I agree with other anon above. I pay for my capital one travel aspire card, and it quite simply is amazing. I get extended warranty protection, travel/cancellation/lost baggage insurance, medical travel, free supplementary card, and a 2% travel credit. I've earned a lot of cash rewards in the past year, far more than with my old 'free' card. you do need to put a lot through the card each month to make it worthwhile, and of course pay it off each month.

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  4. @Anonymous x 2: If you're using a credit card for business travel, then as I said in the article, it makes sense to choose a card that gives good rewards. If it's just personal use, the rewards make little difference.

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  5. Within the requirements you have described, which are the "musts", one may consider maximizing rewards in their particular spending pattern. The rest is marketing.

    As one honest salesman (yes, I am lucky to have met such one) at fishing gear told me: Variety of lure colours is for fishermen, fish is colourblind.

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    1. @AnatoliN: I have no problem with people choosing credit cards based on their spending patterns and the rewards they get. Just don't get too excited about it. It's nice to get something worth $100 or $200, but remember that you had to spend $10,000 to get it.

      Along the lines of the lure story, I wish appliances could be sold to the version of me that is 10 years older so I could pick the model that won't break down in the first 10 years. Features don't matter much compared to trouble-free use.

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  6. Couldn't agree more, MJ. I see the value for business use/travel. But for the average consumer, I think rewards cards are just an inducement to consume more stuff you probably don't need. And fair to assume the credit card companies are banking (literally) on a large proportion of the card owners carrying a balance and therefore more than paying for the cost of the reward program. Would actually be quite interesting to know what percentage of rewards card owners actually pay off their balance in full every month, and what the average monthly balance is among those who don't.

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    Replies
    1. @Juan: I found some U.S. statistics that claim that a little less than half of credit card users carry a balance, and that the average balance among those who don't pay off their cards every month is $15,191. Ouch.

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  7. My take : for anyone who can use their card responsibly and has the ability to make enough work/personal purchases to get some decent rewards it IS worth to have the right rewards card. Unfortunately the card companies in our low interest rate world have really watered down the rewards over the last few years. (after the introductory period)
    There was a time I would receive $600.00/year but you would be lucky to get half that now. (at least in Canada) There are really only about 3 cards to even consider using a simple Google search. As mentioned above, pay your cards in full every month, then consider if the rewards work for your individual situations. It takes a yearly review ( I do this every January) and some phone calls and maybe cutting up your previous years card. I'll take the 3 or 4 hundred bucks in my pocket if it continues to be as easy as it has been for me.

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    1. @Paul: If work purchases are making a difference for you, then great. But I don't see why I should get too excited about 1% or so flowing back to me. I'd rather have money than not have it, but the breathless excitement of blog posts about credit cards puts me off.

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  8. I read this blog occasionally and get the sense that you are very much a mathy, sciency, charty, numbers kinda guy. Nothing wrong with that (the ladies love it), and I am too. As such, like you, I am less interested in all those credit card posts/reviews - they are among my least favorite to read, in fact most of the time I don't bother to even read them.

    All that being said, I'll now play Devil's Advocate by suggesting that the dollar value in question here is NOT trivial at all.
    1) Cash back rewards can be large. I use Scotia Momentum Visa Infinite where I get 4% cash back on all groceries and gas. For my family, that amounts to $400/yr right there. Plus 2% cash back on some other purchases and 1% on the rest. All told I earn several hundred dollars per year in cash back. No, it's not thousands, but it's hundreds worth of basically free money, and I'm not so wealthy yet as to call it trivial.
    2) Travel stuff. I don't personally travel a lot, but I think for some people, things like travel, rental car, etc. insurance provided by some cards can again amount to a non-trivial amount of annual savings vs. equivalent services bought separately. Game changer? No. Totally trivial? Not for some, I'd say.
    I'm sure there are other examples. Just saying....

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  9. I agree, I don't get the position - I have to buy gas every month, I have to buy groceries, I have to buy clothes, I have to pay for my kid's swimming lessons... why not get 2% back on that? I'd definitely pick up a $100 bill lying in the street, why not here? Bascially even a $100 is not trivial, considering there's no work involved.

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  10. @Anonymous x 2: I'm not against rewards; I use a cash back card myself. What I'm against is overstating the importance of these rewards, particularly by those whose real interest is in profiting from credit-card applications.

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  11. Totally agree that rewards cards are useful/beneficial provided you (i) spend enough, and (ii) pay off the balance each month. My concern is for those who aren't that financially responsible, who get irrationally excited by the notion of "points" and "rewards", and use that as a justification to spend beyond their means. Consumer debt statistics in Canada tell us lots of people fall into that unfortunate category. Readers of this this blog are presumably pretty savvy financially and so can use the rewards to their net advantage. But again, lots of folks aren't so wise, and they end up being feasted on by the high interest rates applicable to any balance held on almost every rewards card. Free trips are great, but not if you have a $15K balance owing at 18%.

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  12. Rewards programs increase the cost of goods and services. Since earning rewards at 1-3% of purchases translates into merchant fees of pretty much the same rates to sellers, that becomes a cost to the seller. Also note that people who pay cash/debit are subsidizing these rewards for credit card users since merchants are not allowed to charge a surcharge for credit card transactions (they are allowed to discount for cash, but this is not the norm).

    Out of curiousity, I wanted to check how prevalent reward programs were in Europe where merchants are allowed to charge an extra credit card transaction fee to cover the merchant fees for customers who pay with credit cards. Although I only scanned two credit card offerings, their rewards amounted to about 0.2% of purchases, roughly a tenth of what we see in Canada.

    I imagine there is a reasonable guess to account for this: if customers figure out that by paying more to get rewards they are not in fact getting anything free.

    But since those extra fees are essentially hidden here (in the eyes of the consumer), they don't make that link that their rewards are actually paid for in the form of higher prices for everyone. The limitations on the ability to differentiate prices based on payment method means that those paying cash/debit are helping to pay for others' reward programs.

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    1. Alternative theory: People who use rewards cards (like me) understand this, but don't care that debit/cash users are subsidizing me - unless it's a small business then I make an effort to use cash/debit, but Esso yeah I take out my expensive premium credit card everytime.

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    2. @Preet: Very true. I'd be happy to see changes to make us more like Europe.

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    3. Yes, I do this too. I try to pay cash/debit for the mom and pops, and credit card for everything else.

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    4. Hi Preet,

      In theory you of course are correct. Are rewards cards going to go away in N. America any time soon? I don't think so. So If I go to a gas station and I can take advantage of a 2% discount (5% for the first 6 months for some cards) I will take it. The other person coming to the same station won't get a discount for pumping the same gas and paying cash. Some states have a discount in the US. But nothing here yet except maybe Canadian tire rewards?

      Secondly you can't compare Europe to N. America. Generally there is not the misuse of credit over there compared to here. People pay their bills + loath paying interest. Many stores won't even take a credit card and demand cash or charge you a few % on top of their price. They charge you a tip in advance in eatery's even if there service is crap (and it usually is - I wonder why?) They are generally very frugal. We tend to look at debt almost as a convenience here.

      I think Juan above explained Michael's original point the best. I don't think people really are that aware of how blogs are monetized and how clicking on ad's pays the blogger money. One of the reasons I like Michael's blog is it's not cluttered with ads and you know his comments are from the heart. He is trying to help people more then making up a daily rehashed topic on a flashy site(s) with the goal of money first, content... not so helpful or creative. I could list a few of these very easily.

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  13. You know why there's all those credit card articles? Because credit cards PAY huge dollars for websites that refer customers. It's one of the better paying ways for a blogger to make money.

    I'm all onboard with websites making money, but I have some reservations about this particular method.

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    Replies
    1. @Glenn: Very true. That was my intended point with this article, but it seems that I was less than clear.

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