Credit cards are an important money management tools for most people. They provide a convenient and secure way to make purchases online and in stores, both at home and while traveling. Unfortunately, for many people, they are also a convenient way to run up debt. Current credit card debt averages over $6000 per U.S. household.
A recent survey indicated that reducing debt was American's second financial resolution for 2013, right behind saving more. Issuers of credit cards know that consumers are concerned about these matters. As a result, they heavily advertise "features" of their cards that they claim can help you get "more" from using their credit card or better control credit card debt. In this report, we examine which popular features may provide useful tools and which may be gimmicks to entice you to run a balance on a card and thus provide more profit to the card issuer.
Savvy consumers know that the smart way to use credit cards is to pay off the full balance each month. That way you have convenience (and earn rewards on a rewards card) but pay no interest. When you need to make a larger purchase, place it on your card with the lowest interest rate and make a payment plan to pay off the total as quickly as possible and stick to that plan. IF you are a credit union member, your best option is probably your credit union credit card. Nationally, credit union-issued cards have lower interest rates and lower fees and usually have no annual fee.
Many card issuers and credit card companies offer various money management features. One that has been advertised heavily and which consumer finance experts have reviewed is Chase's Blueprint plan. This plan provides a "Full Pay" feature that enables cardholders to designate certain regular expenses such as groceries or gas to be paid in full without interest each month even if the account carries a balance. Other features such as "Split Payments" enable the cardholder to set up a trackable payment plan for charged items.
While consumer advocates have noted the ease of use of these features, there are also several red lights if a consumer wishes to avoid debt. First, using a credit card to pay for daily expenses is not recommended. It is wiser to use cash, check or debit cards for these necessary expenses that you plan to pay in full. Putting such expenses on a credit card tends to encourage consumers to carry larger balances, rather than make larger payments. A split payment tracker essentially allows you to create an installment loan for a major purchase. However, using a credit card for larger purchases such as appliances is not necessarily smart. A personal loan from a credit union, for example, may have a lower interest rate and cost less than using a credit card. If you decide that a credit card offers the best overall value for a larger purchase, then you do not need to use a particular card with a particular installment feature. Instead, use your card with the lowest interest rate (often your credit union card) and use the money management tools from the card company, your credit union, or your financial management software to create a payment schedule that you can stick to.
If you are carrying balances on higher interest cards, balance transfer offers that provide lower interest rates for a set period of time can be attractive. Some offers come from cards you already have and others invite you to apply for a new card. Some balance transfer offers may be a good deal, but you must carefully examine all the requirements, limitations, and qualifications in the fine print. Here are some specific things to look for.
With these cards, you earn rewards with each purchase you make. Rewards can be in the form of cash back, miles, or points.
If you usually carry a balance, a rewards card may not be your best choice. Why? You may pay more in interest than the rewards you earn. In addition, rewards cards typically have higher interest rates than non-rewards cards. For example, according to bankrate.com, current interest rates on cash-back and rewards cards are approximately 4.75% - 5.75% higher than low interest rate cards.
Here are some of the items you should look at before deciding on a card.
If you want a rewards card, then check out the credit cards offered by a credit union.
As you can see, various features offered by credit card issuers may help you pay down debt faster or get more out of your credit card. But you will need to do a little digging into the fine print to compare requirements to your needs and situation before you decide about any of the options discussed.