As we know, credit card companies call people who pay their bills on time and in full “freeloaders,” and management highly resents such deadbeats because they’re not cash cows like people who sink over their heads in usurious debt. Credit-card issuers make something on us bums, of course, because each charged transaction nicks the merchant a percentage of the sale price. But it’s nothing like the criminal interest rates and extra gouges they get from people who run a tab on their cards.
Well, if you’re one of those losers who pays your bills on time, watch out! The legislation pending in Congress to limit credit-card penalties and curb wacko punitive fees is about to backfire on you. In response to having to quit ripping off feckless consumers who can’t or won’t clear their credit-card debt, the nation’s banks are about to curtail cashback and other rewards, eliminate grace periods, and sock every card user with an annual fee. As American Bankers Association CEO Edward L. Yingling told the New York Times, “It will be a different business. Those that manage their credit well will in some degree subsidize those that have credit problems.”
Don’t think so, Ed. Charge me a fee to carry your plastic around in my purse, and you can have the piece of plastic back. I, for one, do not and will not pay an annual fee (or any other kind of fee) for the privilege of going into debt at a usurious rate. While it’s a great convenience to have an American Express and a Visa card in hand, it sure doesn’t come under the heading of “necessity.”
So, what will we do if suddenly all our credit card issuers inform us that cash kickbacks and airline miles are things of the past, that we now have to pony up $25 or so to use any credit card, and that the grace period for paying one’s bill has died?
The AMEX cashback scheme is the sole reason I use my Costco American Express card for every purchase I make. The reason I got the AMEX card in the first place is that Costco quit accepting any other credit card at its gas pumps, which dispense the cheapest gas in town. Costco won’t accept cash for gasoline, and I don’t care to use a debit card. If AMEX reneged on its cashback plan, I probably would continue to use the card exactly as I do now, because it’s a great convenience and because the “float” between charge date and payoff date makes it easy to manage my budget.
However, if they demanded an annual fee, I’d cancel the card in an instant. Ditto the Visa card.
There are some good reasons to have a credit card, most of them related to booking travel arrangements and to the extra back-up in case of a dispute with a merchant. I’d be sorry to see the cards go, but go they would if I were made to pay to carry them around.
In lieu of cards…what? There are several fine alternatives:
• Use a debit card instead. Costco’s gas pumps accept debit cards, and so do most other merchants. Disadvantages: it’s a fair way to bounce a transaction, and there’s little or no protection if someone steals the thing and hacks into your account.
• Pay recurring bills with EFTs from your checking account, not by charging them on your credit card. Disadvantage: some vendors won’t accept EFTs. But they may change their attitude when their best customers dump credit cards.
• Use cash. Some people find they spend less when they carry cash instead of a charge card. I personally have the opposite experience: cash flows through my fingers like water, and at the end of the day I have no clue where it went. But I suppose you could keep every receipt and enter it in Quicken or Excel; if that helps you keep a grip on credit-card spending, it presumably would do the same for cash.
• Use checks. This creates a paper trail, just as charge card statements do. Disadvantage, of course, is that checks are an expensive nuisance.
My strategy: First, to find out if policies to shaft us “deadbeats” apply to the Visa cards available through the credit union. If not, get one of those; if so, get a debit card and start using lots more cash.
Times reporter Andrew Martin reminisces that in the good old days only the best consumers could get credit cards—and indeed, I do recall the time when flashing a credit card advertised your status. Now everyone will know that only the worst money managers have to use credit cards—pulling out a credit card at the grocery check-out will signal fellow shoppers that you can’t afford to pay your bills in cash.
What do you plan to do if your credit card issuer yanks your benefits and proposes to charge you an annual fee?