The Only Credit Card(s) You’ll Ever Need

October 7, 2011

The worst credit card ever. Why? $7500 fee.

If you missed Wednesday’s post, today’s is Part II of the final (for now), definitive discussion on which credit card you should get. You need one that’ll protect you fully against fraud (discussed Wednesday), and one that gives you the best smorgasbord of rewards.

The problem with the latter criterion is that most rewards are retarded. Examples:

You don’t need any of these things. Well, you need tires, and maybe yoga pants. Maybe even NFL memorabilia, if you’re 12 years old, but that means you’re too young to have a credit card anyway.

The problem is that having these particular pieces of cheese at the end of the maze gives you incentive to change your buying behavior. Should you spend your last $50 on that tchotchke? Well, if it gets you that much closer to a “free” bouquet from ProFlowers, why not? Besides, this Friday is payday.

Most any credit card reward in the form of a discrete item is going to be something you build toward, rather than something you earn instantly. If a furniture store-branded card gives you 5% of your bill back in the form of armoire credits, you’re going to have to spend a few thousand dollars before you can redeem anything.

You want CASH. A flat percentage returned to you for every purchase you make. Discover was the first to do this, and it worked beautifully. Get 1% back, in $20 increments, and you don’t have to change your behavior.

Think about how much it costs the branded cards to provide you with their rewards. Macy’s sells its clothing for a 100% markup or thereabouts. That generous 3% reward rate they’re offering you dwindles to 1½% when you look at it from their perspective. Also, you can only wear so many clothes. And let’s not even get into gimmicks like the “monthly cardholder savings event”, in which the store keeps the lights on an hour longer for the idiots it wooed with such “generosity”, does so to make the gullible feel privileged, then gets all its money back and then some.

This bears repeating: get the card with the highest cash rewards. There’s more to it than simply looking at percentages. A card that offers 1½% should be better than one that offers 1¼%, but if the former pays you only in $150 increments (i.e., you have to buy $10,000 worth of stuff) while the latter pays in $20 increments, then you might want the latter unless you spend an awful lot.

So what card to get? It’s easy. First, only look at cards that don’t charge a fee. If this isn’t obvious, God help you. And that means cards that never charge a fee: not “no fee for the first 2 years, then $95.”  It’s a competitive market. Free cards are there for the asking.

Read the agreement.
Then read it again. 84% of the problems in the world could be solved if everyone did that.

Then figure out what cash rewards card fits you best. Looking at the above example, we’ve got:

Card A, which gives you a $150 credit every time you buy $10,000 worth of stuff. If you buy $9999 worth of stuff, you don’t see a dime until you spend another dollar.
Card B, which gives you a $20 credit every time you buy $1600 worth of stuff.

If you ring up $10,000 in purchases every month (some people do), get Card A. In a typical month, you’ll be $30 ahead of where you’d be if you got Card B.

If you’re not quite at the level of the big spender in the first example, and charge, say, $800 a month, you might want to (but don’t necessarily want to) get Card B. You’ll receive a $20 credit every couple of months, as opposed to waiting well over a year to receive $150 with Card A.

“Points” are for idiots. With every purchase, you want pennies, not points. Well, there’s one exception. Slight hypocrisy alert:

If you know you’re going to patronize a certain business anyway, then it might make sense to go with the rewards. Hear us out. We probably mentioned it someplace on the blog (can’t be bothered to look), definitely in the book, but we use a particular hotelier’s American Express rewards card. Only because we know we’re going to stay in this chain’s hotels a few times a month anyway.

Does that tie us to this chain? Maybe a little, but if we can redeem a free night while their closest competitor is holding a fire sale, we’ll stay with the competitor and save the free night for a later date. Plus, it’s American Express (see universality, above.) If we never left the United States we’d probably go with a Discover straight 1% cash back card.

Assuming there’s no particular retailer you’re already spending significant money with, i.e. you wouldn’t be changing your behavior to patronize that retailer, get a Discover card. Or if you travel out of the country, an American Express Blue Cash Everyday card (not the Blue Cash Preferred, which costs $75 a year. Which we trust you’d notice when you read the agreement, instead of taking our word for it.)

Glad we could help. Tell us where we’re wrong:

**This article is featured in the Yakezie Carnival October 24, 2011: Just do it Edition**

Filed Under: Consumer Debt, Credit Cards, Making Smart Choices, Travel

This post will save you from a lifetime of servitude.

October 5, 2011

 

Free at last, free at last

“Servitude” is one of our favorite words here at CYC. It’s just so versatile in the realm of personal finance. It describes the average employee’s relationship with her employer, the average debtor’s relationship with creditors, and the average human’s relationship with money.

Credit card debt is an inescapable condition of life for most people, as much a constant as snow in winter or the sun rising in the east. On the 1st of every month, you examine your brake fluid level, flip your mattress, and write another check to MasterCard to cover your minimum balance and maybe a little more.

Like illegitimacy, morbid obesity, and collecting welfare, the idea of credit card debt having shame attached to it sounds Paleolithic in 2011. Why shouldn’t it, when the issuers charge those confiscatory rates and expect us to pay them as some sort of punishment for spending our own money? It’s un-American, I tells ya.

You probably already have a card, if not several. That’s just what we do when we reach adulthood in this society. As far as rites of passage go, it’s less jarring than having to leave the village and come back with the head of grizzly. Or cotillions.

Maybe we can catch you early. Maybe you’re young enough not to have anything beyond a debit card, and want to build your credit history. Oh, who are we kidding? For every person who makes a sober effort to “build his credit history”, 50 others want a credit card solely so they can overextend themselves.

Some folks can neither handle nor detect sarcasm, so we’ll play the rest of the post straight. Which isn’t easy.

There are plenty of legitimate reasons to obtain a credit card. A credit card as a concept that is, rather than a particular card. And by “plenty” we mean 4:

  1. Building credit history (see above).
  2. Fronting money when you need to leave a deposit larger than either the value of what you’re taking possession of or what’s in the account tied to your debit card (e.g. renting a car)
  3. Consumer protection.
  4. Rewards.

And one more, universality. You don’t want to run the risk of your card not being accepted, especially if you carry only one. American Express is recognized around the world, but as any American Express cardholder knows, even in the United States plenty of businesses won’t accept it. VISA and MasterCard are accepted almost everywhere, from Timbuktu to Timor. Discover claims that’s its honored in over 40 countries, but that’s news to people who live in 39 of them.

Any card will give you the first two.

As for consumer protection, you want your issuer to guarantee defective purchases up to the purchase price. If the card issuer is willing to underwrite what you buy, then the card issuer should be willing to bear the entire brunt should things go wrong.

I’ve had two instances when I relied on card issuers. In one, I visited South Africa and used the VISA debit card issued by my former bank. Some enterprising sales clerk now had my card number, a copy of my signature, and, presumably, the 3-digit Card Security Code.* Weeks later, after I’d returned home, she rang up a couple of purchases each around $50. I saw them on my next statement and brought them to my bank’s attention. They made me fill out a form and then refunded me the money within days.

American Express helped me out with a hotel that didn’t state a no-refunds policy, but charged me for a full stay even though I cancelled with plenty of days’ notice. The resolution took little more than a week, and I didn’t lose a penny.

Neither time was the issuer at fault. In the first example it’s pretty obvious who’s guilty, yet my bank reimbursed me under VISA’s auspices. They figured it was worth the $100 or so for them to keep me as a customer, even though it wasn’t. They’ll never make $100 off me.

In the second example, the card issuer was slightly at fault. Maybe. You can argue that the because the issuer gave its imprimatur to the hotel, vouching for it as the kind of honorable company that doesn’t assess arbitrary charges to customers who cancel, the issuer should be held somewhat responsible. I’m guessing the hotel (it’s a tiny place, 17 rooms) doesn’t pull that garbage any longer.

That leaves rewards. Which we’ll get to Friday, in Part II of this thrilling dilogy (bilogy?) on which card(s) to get. The definitive answers, coming up. Until then, pay cash.

*So does every other retail employee and waiter you’ve ever dealt with. But yeah, Grandma, typing in your credit card number on the internet is risky. 

**This article is featured in the Yakezie Carnival – October 9th, 2011 Edition**

Filed Under: Consumer Debt, Credit Cards, Making Smart Choices, Personal Finance

Break Your Appliances, Not the Bank

September 28, 2011

Here, this looks like an easy fix

Rather than obsess on how to save money, at CYC we focus on creating, building, maintaining and protecting wealth – regardless of how much you’ve already accumulated. We maintain that few measures that purport to save money are worth the time. (If you don’t believe us, go visit the simpleton who cans his own preserves and then calculates the savings to the second decimal place. He’s easy to find.)

Easy Street, here comes Trent

That doesn’t mean we can’t write about saving money. But as usual, we prefer to drop anchor where the big fish are. Given the choice between pocketing .07¢ on every serving of peach compote or saving thousands with a couple of keystrokes, we’ll take the latter every time. (And then, of course, invest the savings.)

Do you own a house? You should, given that the combination of prices and financing is at a historical nadir.

Once you’ve got a house, get a home protection plan. It’s not quite insurance, but the differences are inconsequential. For a nominal yearly fee, a plan will cover you if something breaks. It will.

NOTE: This is not an infomercial. American Home Shield isn’t paying us for this. We should probably charge them, but they don’t know we’re writing about this and we didn’t tell them. We’re just trying to sell you on the concept of spending a few bucks today to avoid spending a ton later.

CYC World Headquarters has a policy that costs less than $54 a month. Every time something breaks – something that requires a professional – there’s a $60 service fee.

There’s NO LIMIT to the number of calls we can make. It says so right there in the company literature. Practically speaking, even if everything you own breaks, that wouldn’t amount to more than 20 items in a year. And presumably, every warranty replacement would remain in good condition throughout the remainder of the year.

The policy covers easily repairable stuff that isn’t worth the price of a service call (e.g. smoke detectors, doorbells), but also covers other items that a lay person can spend the better part of a week toiling over before admitting defeat (e.g. water heaters; stupid fancy Swedish dishwashers that we bought because they looked so alluring on the retailer’s showroom floor, but not alluring enough to save the retailer from receivership, and which no one in the six-state area seemed to know how to fix.)

On average, a heating unit costs almost $2700 to repair; or more than 4 years’ worth of payments to the warrantor.  An air conditioning unit costs over 3 years’ worth. Even a water heater can cost 11 months’ worth.

How does our warranty company make money? Who cares? Not our problem.

Wait, that’s not a fair nor satisfactory answer. We preach throughout the book that you should look at every transaction from the other party’s perspective. Determine if they’re screwing you over, or if they’re merely getting a fair price for a good service. In AHS’s case, the company profits by spreading out risk. AHS can almost guarantee its network of electrician and plumber affiliates a certain amount of work in each region where it has policyholders.

There’s an ancillary benefit too, which AHS doesn’t even publicize all that much. They give us non-obvious advice about how to maintain our things. (Non-obvious advice is the only kind we have any use for here at Control Your Cash, which you know if you’ve read us for any length.) For instance, who knew that a few pounds of lemon juice ice cubes will remove debris buildup on the sharp edges of a garbage disposal and put an end to that cacophonous whirring metal sound? It works in seconds, and it saves a visit from a plumber who’d rather be doing something challenging like a main line replacement or a boiler conversion.

That’s a win-win for both AHS and us: it reduces the likelihood that AHS will have to pay a technician, and it reduces the likelihood that we’ll require one in the first place. AHS would just as soon collect our money without having to do anything, and we’d just as soon not have stuff break. Plus we’re getting free, actionable knowledge: put into practice, that’s the very foundation of a worthwhile and productive life.

AHS doesn’t cover everything, but it covers enough. Fine, so we have to pay for own electrical face plates. Big deal. The peace of mind of knowing that we’ll never have to fix a well pump ourselves is more than worth the monthly fees.

 **This article is featured in the Carnival of Personal Finance 329: California Dreaming Edition**

Filed Under: Healthy Living, Making Smart Choices, Math, Net Worth, Shopping Tagged With: , , , ,
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