Credit-card lenders, as predicted, are using the new credit-card consumer protection law to upgrade their profits. For a round-up of the latest “improvements,” take a look at Karen’s post at Smart Spending. Some of them are enough to make you consider canceling your credit cards altogether.
Citibank, for example, has raised its interest rates to almost 30 percent! Think of that. And especially think of the tricky ways credit-card interest is applied, so as to soak you on new charges made after the interest kicks in.
Karen reports that Citi proposes to gouge an annual fee of $30 to $90 from customers who have the temerity to charge less than $2,400 a year.
It’ll be interesting to see what else develops on this front. Personally, I never carry cash. I charge most purchases on Costco’s American Express card because AMEX gives a nice cash kickback; the very few merchants who won’t accept American Express get paid with a Visa from Chase. Every month I pay off the charges in full. Neither of these worthy organizations charges a fee.
Yet.
The minute one of them does, though, the card gets canceled. IMHO, credit-card lenders already earn plenty of cash from my purchases, even though I never pay a penny of interest. For every card transaction, the merchant pays the card issuer a fee. The truth is, you and I and everyone else pay the fee: of course, the merchant’s cost is passed along to the customers. The card issuer’s contract forbids the merchant from offering a discount for cash purchases. This means that everyone, even people who never charge anything on a card, has to pay extra for every item in the store. In other words, Dear Reader, we’re all already paying for the privilege of living in a credit-card culture. Card issuers earn quite enough from usurious interest rates and nicking merchants—they don’t need to zing you’n’me with annual fees to make a nice profit.
Evidently I’m not alone in that opinion. Karen’s Smart Spending article notes that a third of credit card customers have canceled their cards, half of them specifically because of changes such as higher interest rates or new fees.
Ever ask yourself how you would get by without a credit card?
If you travel a lot, it could be a challenge: you really need a credit card to make plane and hotel reservations. But they’ll probably take a debit card. You lose some of the advantages of a credit card: deferral of the payment date and some element of recourse if the purchase doesn’t work out for one reason or another. Still, if you were determined not to pay the additional rip of an annual fee, it might be worth the inconvenience.
But otherwise, it’s not horribly difficult. You have four fine alternatives to the credit card, at least one of them guaranteed to keep your budget running in the black:
• Cash
• Checks
• Debit cards
• Prepaid merchant purchasing cards
Each has its pros and cons. Videlicet:
Cash: The Good
🙂 Fast
🙂 Universally accepted
🙂 No need to memorize PIN numbers
🙂 No paper trail: protects your privacy
🙂 Hassle-free: no fights with banks or credit-card issuers
🙂 Built-in spending limit: keeps you on budget
Cash: The Bad and the Ugly
🙁 Too easy to spend
🙁 No paper trail: hard to track spending, no proof of tax-deductible purchases
🙁 No recourse in dispute with merchant
🙁 Easy to lose or steal; no recourse to insurance if stolen
🙁 No good for Internet shopping or phone transactions
🙁 Bulky to carry around
🙁 Unsanitary
Checks: The Good
🙂 Relatively easy to use: no PIN needed
🙂 Most merchants accept them
🙂 Check register: easy to track spending
🙂 Hard to use if stolen; no $50 liability limit for ID theft
🙂 ID checks at register: added theft protection
🙂 Paper trail; unarguable proof of payment
Checks: The Bad and the Ugly
🙁 Easy to overdraw account: stiff overdraft fees
🙁 Checking account fees: Need to use credit union to avoid bank gouges
🙁 Time-consuming hassle at check-out
🙁 Bulky and heavy to carry around
🙁 No good for Internet or phone transactions
🙁 Paper trail: accessible to those you’d just as soon not have knowing your business
🙁 Can be forged by thieves who know what they’re doing
Debit Cards: The Good
🙂 Lightweight, easy to carry
🙂 Fast
🙂 Widely accepted
🙂 Good for Internet shopping, phone transactions
🙂 Paper trail: statements show purchasing record
Debit Cards: The Bad and the Ugly
🙁 Many nicks and gouges from bank fees
🙁 Also some merchants’ gouges
🙁 Merchant-instigated holds on bank accounts
🙁 Vulnerability to ID theft, armed robbery
🙁 Paper trail: little privacy from intrusive merchandisers and other uninvited observers
Merchant Purchasing Cards: The Good
🙂 Budgeting device: Limit monthly expenditures by limiting amounts on card
🙂 Fast
🙂 Easy
🙂 Lightweight, easy to carry
🙂 No fees
🙂 Relatively little hassle
Merchant Purchasing Cards: The Bad and the Ugly
🙁 Recurring inconvenience: Recharge as money runs out
🙁 Limited to specific merchants
🙁 Stealable: great windfall for thieves
🙁 Little use for Internet or phone shopping
🙁 Hard to track purchases
🙁 But easy for merchant to track your behavior: privacy issue
🙁 Various merchant scams and limitations
Each of these devices has its uses. Personally, I distrust debit cards—too many opportunities for banks and merchants to zing you with incomprehensible fees, too vulnerable to identity theft. If things come to such a pass that I decide to get rid of my credit cards, I think I’ll use merchant purchasing cards as “cash envelopes” for certain kinds of recurring purchases and then use real cash or checks for everything else:
Purchasing Cards:
Costco
• gasoline
• lifetime supplies of household goods
• bulk food purchases
• wine and beer
• casual clothing
• office supplies
• books
Safeway
• fresh food purchases
• bargain meats
• small incidentals
Cash:
• eating out
• entertainment
• very small incidentals
Checks:
• workmen
• veterinarian
• doctors’ copays
• all goods not purchased at Costco or Safeway (such as clothing, linens, decorating items, prescriptions, etc.)
It’s interesting to contemplate, because abandoning credit cards would force me to rejigger my budget. Right now I budget a certain amount (it’s been $1,200; is about to drop to $1,000) for spending on all costs other than regular recurring monthly bills. Those costs are all put on the card. So, I use two debiting tools: automatic bill-paying and the credit card, each of which has its own sub-budget ($840 for monthly bills and monthly savings; $1,000 for all other spending).
If I dropped the cards, I’d have to budget for not two but four spending tools: automatic bill-paying, purchasing cards, cash, and checks. Drawback is an added layer of complication. However, the trade-off is that such a system mimics the cash “envelope” budgeting strategy, and it might be a great deal more effective at keeping one on budget.
More on that topic tomorrow!
Oh I keep saying I’d just drop my CCs like a hot potato if they started charging me scurrilous fees, but it would certainly make me angry if that came to pass.
It’s how I keep track of my spending; cash spends too quickly, easily, and recordlessly!
I’m sure I could go back to writing checks, using my bank card *shudder* and such, but the inconvenience of it all would really drive me a little batty.
@ Revanche: Ditto to all that!
It’s possible that using merchants’ purchasing cards at stores where you shop routinely — such as Costco or Sam’s Club, your favorite grocery store, maybe Home Depot — might get around those issues. It would be “like” a credit card in that it’s fast and convenient at the cash register, but “like” cash in that you’d have to work at keeping a record of expenditures.
By far the largest chunk of my spending money ends up at Costco or in Costco’s gas pumps. So it would make sense, if the CC companies start gouging an anual fee out of everyone, to buy a card at Costco once a month. Maybe one at Safeway, too. It would eliminate a lot of check-writing, leaving only a few incidental purchases to be covered that way.
Well, so far, my credit union is holding the line on cc fees (AND on the 7.9% interest – not that it matters to me much, since I usually pay in full).
I’m just hoping that they will continue to be ‘member oriented’. I’d hate to move to cash – I can NEVER track it and it seems to just melt out of my hands – unlike my debit and credit cards that I know to the penny what I’ve spent.
Thanks for the mention, my friend. My CC company recently raised the interest rates, but I don’t care because I NEVER carry a balance. but if my CC company imposes an annual fee, I will be gone in a skinny minute.