Credit Cards

As someone else mentioned earlier, credit cards should be seen as "express checks"; you NEVER charge more than what you have in your bank account. If you charge more than what you can pay off, then it's just like taking a loan from any bank, and pay interest on it later.

Wise people use credit cards to their advantage; whereas the unwise, or the unfortunate, gets strapped down with big interest to payoff.

Let's take the "Shell Master Card from Chase", for example. To start with, there's no annual fee for the first year. (Then for all subsequent years, the $20 annual fee is waived as long as you make 9 purchases at any Shell station.)

So the only extra expense to own & use this card is really just the stamps you use when you send in your monthly payment, right? But the benefit of charging expenses to this card is that 2% of everything you charge (except advance cash, and some other minor restrictions) is credited toward your gasoline purchase from Shell.

So let's see, 12 months per year * 1 stamp per month (approximate) = $3.84 spend on postage. Divide that by 2, then multiply by 100 gives $192. So as long as you're spending $192 per year, the gain equals the loss. But what if you spend more than that? You'll just be earning free gas. Simply by paying your groceries with the card, you're getting more purchase power out of your money. (But for those people whose total annual expense is less than $192, although I can't imagine anyone living on that kind of budget, it's probably not a good idea to use this card.)

So you say "what if other gas stations in town are cheaper than Shell?" Well, there's nothing prohibiting you from buying $0.10 worth of gas, is there? Just do that 9 times a year at any [cheap] Shell station you find around town, then the annual fee is waived for that year. I know, I know, it's cheap to do that. But if you know how credit cards work, you'd have no conscience problem.

Credit card companies earn their money from the merchants that take your card. If I'm not mistaken, for VISA and MC, the creditor earns a commission of 2% on the total transaction, but no less than $0.02, and no greater than $20 per transaction. (That's why there's a transaction fee if you use the card to get advance cash at ATMs.) So as long as you're charging anything to your card, the creditor is earning profit. The 9 purchase per year restriction is only used to take advantage of people whose time is too valuable to stop at a gas station and buy only a few cents worth of gas.

These "rebate" credit cards are almost limitless. Most of the national chain stores probably already have them, or are in the process of negotiating with a bank to issue them. Even my college, Worcester Polytechnic Institute, has such an arrangement with one of the national banks; WPI's share of the revenues helps to fund some academic programs. (But in this case, the card holder doesn't benefited from it directly. I only wish there's a "go-to-college-for-free", or a "tuition rebate" credit card around!)

Some of these "rebate" credit cards that don't make sense include the USAir/FirstNation VISA card. By the time you accumulate enough mileage to earn a free ticket, you would have paid so much annual fee that you might have as well bought a discounted ticket.

In any case, as long as you pay off the monthly balance on time, you'll never get charged for any interest. (That's why I never pay attention to that portion of the "disclosure" either; I don't need to know that information.)

Jack "still a college student, still in the process of building a good credit history, still getting denied credit by First USA Bank simply because I've had my first two credit cards for less than 1 year, even though I've _always_ paid my bill in full on time," Chang

Take the Next Step

• Use a Credit Card Calculator to find out:
  The true cost of paying the minimum
  - What will it take to pay off my current balance?
  - Which is better: Cash Back or Low Interest Card?
  - Which is better: Airlines or Low Interest Card?
  - How much could I save by transferring my balances?

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