Invest in Sylver or Platynum before Zync.

February 22, 2010

Ysn't thys clever? Yt's a good thyng our comedyc ynstynct ys so childysh.

We’re still having this discussion?

Listen, the credit card companies don’t owe you a thing. You owe them. That’s how you got stuck in this mess, remember?

You applied for a card. You signed an agreement. No one “preyed” on you. Coyotes prey on ground squirrels. But the ground squirrels never initiated proceedings with the coyotes.

If a credit card company promised you a 7% interest rate, then started charging interest on your balance at 15%, then you can consider yourself preyed upon. Even though you’re idiotic for carrying a balance in the first place. One problem: no issuer has ever arbitrarily raised rates without notice. They’re not going to blatantly lie and run the risk of losing customers.

But they lost me, you say. I refuse to pay their confiscatory interest rates. I’ll never get out of this mountain of debt. Even the White House and Congress want to keep them in check, so clearly the issuers are doing something nefarious.

Then where’s the court willing to hear the inevitable class action suit filed on behalf of millions of defrauded cardholders? Fine, if you’ve got conclusive proof that a credit card issuer dishonored the terms of its agreement with you, let us know about it at info at control your cash dot com. Include a copy of the agreement.

Neither American Express nor Visa nor MasterCard nor Discover has ever held a cardholder at knifepoint and said, “Buy stuff, preferably more than you can afford.” Diners Club and Carte Blanche, we can’t vouch for. Ask your great-grandfather.

Governments routinely change the rules in the middle of the game, but do you seek redress for that? Your elected representatives and executive branch raise tax rates, and your only recourse is to emigrate. Which is somewhat less practical than cancelling a credit card.

In Control Your Cash: Making Money Make Sense, we endorse Discover and American Express Blue Cash as the only credit cards you should look at (and even then, pick only one of them.) Sure enough, the moment we sent the manuscript to the publisher, American Express unveiled a new card: Zync.

It’s got a contemporarily misspelled word and it starts with a Z…the young folks will love it! Zync is intended for people in their 20s and 30s, as evidenced by the patronizing marketing campaign. (Hey, that’s Control Your Cash’s demographic! Only we try to talk to you like adults.)

Anyhow, here’s how Zync works. You pay $25 annually, which immediately sounds like a bad idea, but keep reading. You have to pay the card balance every month. (Until the ‘90s, this was how every American Express card worked. The company made a lot of money on annual fees, and even more on services available only to cardmembers. Convince people that they’re special and you can rifle through their pockets indefinitely.)

On top of the $25, you can pay an extra $20 for what American Express calls a “pack”. “Packs”, just like the way they expand the video games.

Anyhow, packs: (This feels like explaining Twitter to my grandmother.) The Go Pack, the Social Pack, the Connect Pack, the Eco Pack. That pretentious-sounding last one waives the $20 fee, because encouraging something as noble as global-mindedness should never come with a price tag.

The Go Pack earns you double rewards on airfare, an annual $50 credit if you book a vacation via American Express (don’t, Orbitz is free), 20% off Hertz car rentals, and 25% off Avis and Budget. (We’d love to know which Hertz employee stood firm on that 20%. Don’t kid yourself: they really are #1.)

Then there’s the Social Pack (social, like networking! This isn’t your grandfather’s credit card.) Double rewards at restaurants and shows, and first crack at seats for the latter.

Followed by the Connect Pack. Double points on your cell phone, cable and internet service; and you get 1/3 more points on cell phones at MembershipRewards.com.

For the insufferable among you, and those who just happen to prefer the illusory to the tangible, get the Eco Pack and American Express will buy $1 of carbon offsets. Amass enough of them, and you too can get a Sri Lankan farmer to metaphorically dig himself an early grave by continuing to plow his yam fields with oxen and a hand tiller instead of saving up for a tractor. As if that’s not enough, you’ll earn double reward points on any item deemed sufficiently holy by American Express’ green-rating service. This includes Chevy Volts, Olive Green loofah dog toys, Aleutia solar-powered desktop computers (we’d never heard of them either), and other stuff we wouldn’t be caught dead buying.

You know what were the first companies to offer reward points for buying more of their product than was good for you? Cigarette manufacturers, and not by coincidence.

American Express gives you “one point for virtually every dollar you spend.” So charge $432,000 to your Zync card, and you can earn a 17” MacBook Pro with a 2.8GHz Intel Core Duo processor, which is a wonderful computer that retails for about $2000. Of course, this assumes you haven’t redeemed any of your reward points for anything else in the time it takes you to spend that much.

Don’t be confused by the hijacking of a word. A “reward” is what you get for lassoing the horse thief to the cactus and holding him there for the sheriff. Credit card “rewards” are really incentives. They’re encouraging you to buy a particular product or service that you wouldn’t have otherwise.

You don’t want that. You want cash. (You really want gold or real estate, but credit card companies don’t offer those.)

So does Zync make sense? Only if you’re in that small group of people who know you’re going to rent $225 worth of car from Hertz this year (or $180 from Avis or Budget.) American Express’ own Blue Cash is a better deal. Blue Cash is not only free, it refunds you $1 for every $200 you purchase. Once you buy $6500 worth of stuff with it every year, they’ll refund $1 for every $80 you spend. You’d have to spend “only” $163,900 to earn that MacBook Pro. Which you should buy on eBay anyway. To paraphrase AC/DC, sink the Zync.

Fortunately, we don’t have to change one word of credit card advice in Control Your Cash: Making Money Make Sense. (And while you’re here, scroll up and to the right and buy a copy or two of our still up-to-the-minute book.)

Filed Under: Credit Cards Tagged With: , , , , , ,

Someone should do something about how much money I spend

October 25, 2009

 

A vehicle to encourage responsible spending.

This is the fusion of two of our bugbears, each indirectly related to personal finance: media idiocy and public panic. The photo is of an application for a credit card issued by First Premier Bank of South Dakota. The interest rate on purchases and cash advances is:

79.9%

A reporter from San Diego’s NBC affiliate* with some air minutes to kill manufactured a story out of the application. Here’s his impassioned defense of an innocent viewer who was just blindly applying for credit cards one day when he ended up getting impoverished. Actually he didn’t, all he did was open an envelope, but news wouldn’t be news without a little embellishment:

Hageman acknowleged that his credit isn’t perfect, but he said it’s about average. He said the pre-approved offer didn’t mention the actual interest rate on the card — for that, he had to read the enclosed fine-print disclosure. (Editor’s note: the disclosure is the pre-approved offer. The offer is the disclosure. This is a distinction without a difference. “Your honor, I didn’t hit her, my fist did.”)

“I think you’re beginning to border on deception there,” San Diego State marketing professor Michael Belch said.

No, Professor Belch. Deception would be charging 109.9% or 139.9% while listing a rate of 79.9%. What you’re commenting on is candor, the opposite of deception. Which is apparently beyond the grasp of the overeducated.

So, serious question: is a credit card with a 79.9% interest rate an atrocious deal? There are two possible answers:

  1. Not really.
  2. No.

Let’s examine them in numerical order. [For you people who would pay interest on a 79.9% credit card, that means we’ll do 1) (ONE), and then we’ll do 2) (TWO).]

1) NOT REALLY

The next credit card issuer to force someone to use its cards will be the first. Card issuers don’t tell you to buy things you can’t afford, live beyond your means, and then owe them money for the privilege of letting you buy what you couldn’t afford in the first place.

If anything, card users should be happy that banks like First Premier provide a means by which such people can spend recklessly in the first place. If credit cards didn’t exist, or if this were the 1960s and cards were only available to rich people, then anyone who would today use a 79.9% card would have to save money before spending that money. The horror.

Hageman claims his credit is “about average”, but doesn’t quantify it with, say, a credit score.** Hageman’s (and the journalist’s) complaint is essentially the following:
“You can’t trust me not to spend what I haven’t yet earned. First Premier is offering nickel beers, and here’s me, fresh out of my AA meeting.”

You don’t have to apply for the card. If you do, you don’t have to accept it. Nothing is usurious, deceitful or dishonest about First Premier’s offer. In fact, they’re being pretty clear: if you use their card, you have a month to pay off your purchase. That they give you 30 days makes First Premier far more accommodating than merchants you pay with cash, who often expect their money within 30 seconds. First Premier will cover you for the first month.

If you don’t pay off your purchase within a month – which is an eminently reasonable task you ought to be able to complete, assuming you know how to read price tags – then in exchange for their generosity, First Premier will charge you 79.9% interest.

That is perfectly fair. You signed an agreement, with mutual rights and responsibilities. First Premier honored the responsibility part of its side of the agreement, and now they’re entitled to their right: 79.9% interest on your money.

This story came to the attention of Control Your Cash after appearing on Consumerist. That site’s commenters show what happens when personal responsibility goes from being a fundamental precept of life to a vestige from our grandparents’ era. Here’s an example:

The guy who owns First Premier has donated billions to one of the local hospitals for a children’s hospitals (sic) and a research facility. It is going to take much more than that to undo the bad karma he has going on.

Engaging people in bilateral, voluntary commerce now fosters “bad karma”, as defined by the kind of person who a) believes in karma, b) thinks it has a place in an economic discussion, and c) thinks spending “billions” of dollars on “a children’s hospitals” is barely a step in the right direction.

Not that people who comment on web stories are necessarily examples of intellectual titanhood (think about that before you comment on the post you’re reading right now), but here’s another:

Which is why we need a NATIONAL usury law. Problem is these crooks have great lobbies in state governments.

Words mean what they mean, and “crook” has a fairly unambiguous definition. Crooks steal. They take what isn’t theirs. What they don’t do is enter into a voluntary contract, then honor it. Calling an honest business entity a “crook” is like saying “literally” when you mean “figuratively”. Or “black” in lieu of “white”.

Here’s one last commenter, blessed with a gift for both pithiness and renewing our faith in humanity:

Don’t like the terms? DON’T USE THE CARD!!! It’s pretty damn simple people. Where did this entitlement mentality for cheap credit card interest rates with free stuff back come from?

2) NO.

Let’s answer a question (if you forgot, it’s “Is a credit card with a 79.9% interest rate an atrocious deal?”) with a question. What’s the difference between a card with a 7.99% interest rate and a card with a 79.9% interest rate?

If you Control Your Cash, nothing. If you ring up $500 worth of charges, then transfer $500 from your bank account to First Premier within 30 days, it doesn’t matter what they charge. There is no difference between a card that charges 1% interest and one that charges 500,000% interest.

 

So should you accept First Premier’s offer, and happily charge purchases to your 79.9% card? After all that, no. But for completely different reasons.

The least important criterion for what credit card you should get is the interest rate. The most important is the benefits it’ll provide, for the price.

More than most cards, an American Express card can make it easy for you to reverse purchases that go awry (e.g. a brake relining that doesn’t work.) But depending on which particular American Express card you get, you might have to pay an annual fee. The standard Discover card doesn’t have an annual fee, and gives you 1% cash back on everything you buy. But it’s also useless outside the United States.

Most credit cards are free to use. If you can’t find a free one, you probably shouldn’t be using credit. And that’s what makes the First Premier card a bad deal:

The $75 annual fee.

You saw that, right? Of course you did. You read the agreement.

——————-

*Our primary passion at Control Your Cash is the responsible use of money. A close second is our hatred of journalists. In particular, television journalists. In particular, local television journalists who have neither the chops nor the ambition to progress beyond their home market(s). That’s why we don’t mention journalists by name. You can still verify the story by clicking the link, but we won’t do the journalist the courtesy of a mention.

**Why should he? Math is hard! Numbers are intimidating! Words are better than numbers, especially because you can’t prove something with the former as convincingly as you can with the latter.

**This post is featured at the 28th Carnival of Money Stories.**

Filed Under: Credit Cards Tagged With: , , , , ,

Paper or plastic?

October 11, 2009

Would you be interested in an investment that pays 14.29%? You can get in for as little as a dollar, but the average investor puts in $6775.

You’ve had a fraction of a second to decide, but you can’t possibly still be thinking about it. 14.29%. This investment pays 7.8 times the highest available rate on money market accounts (from Flagstar Direct in Troy, Michigan), 8.4 times the highest rate on 1-year CDs (Ally Bank in Midvale, Utah) and 19 times the highest rate on checking accounts in a city chosen at random (Charles Schwab in Ocean View, Delaware.)

This investment came close to beating the Dow as a whole over the last year (which has gained 14.98%.) Unlike the Dow, this investment isn’t a gamble. It comes with a guaranteed return.

The investment is credit card debt. The numbers in the first paragraph are the average rate and balance among American cardholders.

Yeah, but he had a GREAT introductory rate.

Very funny, you soulless jerk. You’re poking fun at me while Visa and MasterCard are busy giving it to me repeatedly and hard.

Then here’s the same advice recommended to any woman who whines about being in an abusive relationship: stop being a victim.

If you have a spare dollar, there’s no excuse for having credit card debt. This post is mostly for the benefit of the people who haven’t incurred credit card debt, but if you’ve already let it get away from you, you need to wage the equivalent of total war on your debt.

Wear a sweater instead of turning the heat on. Learn to cook, and never eat out. Sell that car. You own it outright? We don’t believe you, but if you do that’s even better and will take a significant chunk out of any credit card debt you owe. Buy a bike or take the bus. Live the life of a Kosovar refugee until you eliminate that balance. A few months or even years as an ascetic beats the hell out of a lifetime as a credit card company’s sharecropper.

If you haven’t yet incurred credit card debt, the austere lifestyle above is what awaits you if you do. The only question is whether you want to compress it into as little time as possible, or spread the pain out over a lifetime.

The mantra will never get old nor obsolete: Buy assets, sell liabilities. The two aren’t purely symmetrical, however. Assets, those wonderful constructs that enrich you, are somewhat optional. Liabilities, in all their impoverishing glory, are not. You have to pay them, one way or another.

The fewer liabilities you have – e.g. a credit card balance that’s enriching the issuer while rendering you worse than broke – the less capacity you have for buying assets that will ultimately keep you out of poverty.

There appears to be no consensus on which culture the following proverb supposedly originates from – Chinese, Songhai, perhaps Aztec – but it applies here in spades:

“The best time to plant a tree is 20 years ago. The second-best time is now.”

————————–

Lung cancer is an effective means for killing 1.3 million people every year. Fun symptoms include shortness of breath, abdominal pain, and fatigue. Many lucky patients also enjoy profound weight loss, and even deformed fingernails. Pain in the bones, metastasis to the kidneys and lymph nodes, skin that turns grey…lung cancer is something you’re probably going to want to shun, unless you’re a masochist of historic order.

Control Your Cash isn’t above dispensing occasional unsolicited amateur medical advice. You want to know the best way to avoid lung cancer? A way that’ll reduce your chances by at least 90%, assuming you want to avoid spending your declining years bedridden and praying for the sweet release of death?

Never start smoking.

Hopefully you’re not looking for a more intricate answer, because that’s as complex as this one gets.

You can figure out where we’re going with this. If you want to avoid being indebted to credit card companies for the rest of your life, don’t take that first drag. Don’t buy that first pack. (Or if you do, at least pay for it with cash.)

Here’s a radical concept: buy what you can afford. Credit card companies aren’t responsible for your dismal financial situation, any more than the guy behind the 7-Eleven counter will be responsible for you coughing up blood 20 years from now.

How many possible excuses can there be for incurring credit card debt? “I didn’t know how much the stuff cost”? “It just kind of crept up on me”? “It’s the retailers’ fault for making me want it so much”? Read the freaking price tag. You can’t be so easily swayed as to look at the minimum payment listed on your monthly statement and find it palatable, if you’re carrying a $6775 balance. Or even if you’re carrying a $200 balance.

We’d reprint the relevant passages of a typical credit card agreement here, but if you didn’t read your agreement when you received your card and started incurring debt, you’re not going to read it now. Just understand that the moment you fail to pay your balance in full, you’re on the road to cheating yourself, your posterity, and your planet. Incurring debt that you can’t pay is the act of a child, not an adult; a parasite, not a worker.

Credit is a privilege, a word that’s been largely equated with “right” in recent years. Not only does nobody owe you anything, nobody even owes you the means for owing other people. (Which is a good thing. One of the best ways to avoid credit troubles is to be ineligible for them in the first place.)

When credit cards were invented in the 1960s, they were status symbols. We’re not referring to the American Express black card. We mean the now-lowly green one. And for years, the issuers enjoyed a modest business charging interest to the kind of profligate people who found it gauche to pay for restaurant meals with cash. The credit card companies didn’t bother selling to middle- and low-class people, the argument being that those people didn’t have enough money to be customers.

It took a while, but the credit card companies eventually figured out that you don’t need to be rich for them to profit off you. All you needed was the capacity for earning something, somewhere down the road, and the law of large numbers would take care of the rest. Which it has, and beautifully.

In recent months, Americans who bought too much on credit engaged en masse in our national pastime – whining about their situation. Which resulted in a compliant political establishment requiring credit card companies to lower their rates. This was a classic example of Washington bipartisanship, a noun which when applied to domestic policy means “responsible people are about to get punished.”

Like almost all laws, the one capping credit card interest rates led to unintended consequences worse than the trouble that prompted the law. With their potential profit reduced, credit card companies simply stopped offering cards to high-risk customers. Many of those high-risk customers will still find their credit, even if it’s being offered by people who understand physical violence better than they do legal procedure.

But regardless, the credit card companies still have to make up the shortfall somehow. Which can mean universal user fees, penalties for prompt payment, even cancellation for people who committed the sin of paying their accounts in full every month. To the responsible credit card carrier, this means a reduced opportunity to ride free on the backs of people who refuse to Control Their Cash. But it’s also a chance to strip away preconceptions. Imagine if credit cards didn’t exist. You’d save up to pay for stuff with cash, or at least with collateral.

And how is that worse than paying a creditor every month?

Filed Under: Credit Cards Tagged With: , , , , , ,
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