The Fine Print

Keep Track

My cousin has three credit cards, with a $500 limit on each. Usually, he told me, he's within $50 of that limit on all three cards.
So to avoid going over the limit, he calls each card issuer's toll-free number every couple of days, finds out the latest balance and available credit, and jots down the figures in a little notebook he carries in his shirt pocket.

Then, when he needs to use a credit card, he looks to see which card has the most available credit and uses that card. Then he subtracts the amount charged from the available credit and increases the balance accordingly. This technique has worked well for him for quite a while-until last month. One day he called a credit card issuer to find out the balance on one of his cards, and to his horror discovered that, for some reason, he was over the limit...by 55¢. Even worse, they had charged him an over-the-limit fee of $39! For a 55¢ infraction!

He promptly redialed the toll-free number and listened carefully to the recorded message, to find out which key to press to talk with a representative. It wasn't easy. There were keys to press for everything but that. Finally, by pressing every key on the phone, one at a time, he got to talk to a rep who was, as many are, in India. (Others are usually in the Philippines, and a few-for some reason-are in Argentina.)

The rep listened to his tale of woe and, after checking his payment record, agreed to cancel the fee "as a one-time courtesy to a good customer." He also advised him to maintain a lower balance to avoid going over the limit again.

Laughable Terms in This Economic Environment

The other day, an unemployed friend of mine received a credit card offer in the mail-complete with a realistic-looking but phony credit card. The letter said he was "pre-approved" for a credit card designed for those with "less-than-perfect credit." It was a MasterCard with a 9.9% APR on all purchases.

"It looked good to me," my friend said, "until I read the leaflet that was enclosed with the letter. It was entitled 'Initial Disclosure and Important Information About Fees, Rates, Costs, Limitations, Available Credit and Other Terms.'
"The minimum initial credit limit," the leaflet stated, "was $250. 'Okay,' I thought, 'they were being cautious. They'll probably increase it once I make a few payments on time. But then I kept on reading...and I started to laugh.

"The Program Fee, the leaflet stated, was $95. The Account Set Up Fee was $29. The Annual Fee was $48. And the Monthly Service Fee was $7-or $84 annually. So when you added up the $95, the $29, the $48 and the first $7, you're up to $179. Subtract this from the $250 credit limit, and you've got a great big $71 credit limit. "I could probably do better looking for loose change under my sofa cushions."

Moral: Read the fine print, not just the big type, before you apply for a new line of credit. What the big type promises, the fine print may restrict or take away.

Credit cards come with a lot of terminology that consumers don't always understand mostly because they have so many other things to worry about on a daily basis.  But refreshing your knowledge of terms like "universal default clause", "introductory rate", and other credit-related lingo can save you from racking up a lot of extra charges on your credit cards.

Regular Interest Rate
Most people know what credit card interest is.  It's the annual rate that you are charged to carry a balance on your cards.  If you pay your credit card balance in full every month before the due date, you don't pay any interest.

Introductory Rate
An introductory rate is a lower than normal interest rate that credit card companies use to attract new customers.  These rates can result in significant savings if you use them wisely.  These reduced rates are usually temporary though, so make sure that you know how long they last before they change to the regular interest rate.  Getting stuck with a large balance on a card that started out looking pretty good because of a low introductory rate can cost you more money in the long run than sticking with your average-rate card.

Annual Fees and Bill Payment Fees
Some cards charge fees in addition to the interest you pay on your credit card balance.  Common fees are annual fees and bill payment fees.  Annual fees range from about $30-$50 and are charged on many sub-prime and high-risk cards.  Bill payment fees are sometimes charged to consumers who pay their bills online or by phone.  Make sure you avoid these extra fees whenever possible by avoiding sub-prime cards and by paying your bills by mail if possible.

Penalties
Paying your credit card bill late or going over your credit limit can result in steep penalties.  A late payment can cause the card issuer to raise your interest rate by several percentage points in addition to charging a fee of up to $50.00 for each month you make a payment after the due date.  Many card issuers also charge an over-the-limit fee of up to $50.00 if you exceed the limit on your account.  This fee can also be charged each month your balance remains over your allowed limit.

Universal Default Clause
It's not good enough anymore to keep current on as many of your bills as possible.  Many credit card companies have now written clauses into their contracts that if you are late on any scheduled payment – your other cards, student loans, car payment, mortgage, etc. – they can raise your interest rate because you are now perceived to be a higher risk than they had bargained for when they issued your card.

The savvy consumer can avoid problems, penalties and save more money by understanding how each of these terms affects their credit card use.

...It’s for Business

Those of us who are old enough to remember—but not so old we forget—can recall the good old days, when all the interest paid on credit card accounts was tax-deductible. Even the interest you paid when you charged items or services for personal use was tax-deductible. Shortly after year’s end, the credit card issuer provided the total amount of interest you paid during the year, and you simply wrote this number on your federal tax return to claim a deduction.

But then Congress changed the rules, and you can no longer save on your taxes this way. However, there’s still a way, if you qualify, to declare credit card interest as a tax deduction. If you paid interest on items you charged for business use, you can claim it as a deduction—on Schedule C—along with the cost of the items you purchased.

The hard way to do this is to use the same credit card for both business and personal use. You would have to go over each monthly statement, separate the business purchases from the personal ones, figure out the interest on them, and report it on your tax return.

The easy way is to use a separate credit card for business transactions only. Then you can not only declare the interest as a deduction, but also any annual fees, late fees, over-the-limit fees, pay-by-phone fees, talk-to-a-rep fees, etc. 

1. Make the minimum payment each month

2. Stay within 25% of your credit limit (If you have a $10,000 credit line, only carry a balance of $2,500)

3. Inform your creditor if you are going to miss a payment

4. Use for gas and groceries as you can receive extra points

5. Transfer balances from higher interest rate credit cards onto one credit card

6. Negotiate a lower interest rate every 6 to 12 months

7. Use for online purchases

8. Establish a separate credit card for business expenses

9. Close an account that hasn’t been used in 120 days

10. Don’t use for cash advances

When applying for a new credit card, most consumers focus on the “promotional interest rate” or the interest rate that they will be charged for a specific period of time. What many consumers aren’t aware of is that if they miss a single payment due date their promotional rate will default to the regular interest rate. However, if an account has been in good standing for a long period of time and a call is made to customer service, credit card companies will typically revert the account back to its prior status.

 

After the promotional rate expires, credit card companies will automatically transition the account into a “regular interest rate” or corresponding interest rate, which is the normal amount of interest that a consumer will pay when they carry a balance. For individuals with good credit, typically this rate is the prime rate plus an additional amount (i.e. 4% + 6.5%).  If you see “periodic rate” on your credit card statement, this is simply your regular, promotional or cash advance interest rate divided by 12 months.

Credit card companies charge a substantially higher interest rate if you receive cash from your credit card. Most consumers don’t realize that withdrawals from ATM machines can cost as much as $3 for every $100 received plus an interest rate above 20%. If you are looking for cash to pay off other debts, make sure to wait for a convenience check in the mail which is most commonly based off of the promotional interest rate.

The effective interest rate is the sum of all finance charges, including transaction fees expressed as a percentage. This is similar to the fully loaded rate displayed on mortgage applications.

While most credit card holders use their cards for groceries, grandma's birthday present or gasoline fill-ups, the 0.00000001% of the world population holding the American Express Black Card do not settle for such mundane purchases.  Forget buying a seat on a roundtrip airline route, why not charter a jet using the American Express Black Card?  Forget filling up your gas tank in your Honda Accord, why not buy a Bentley using your American Express Black Card?     

And, these purchases are just scratching the surface of the lux, lavish and one-of-a-kind  purchases using the Black Card.  Comparecards.com's favorite purchases by American Express Black Cardholders: buying a horse ridden by Kevin Costner in Dances with Wolves; buying a handful of sand from the Dead Sea for a child's school project; buying a role in the case of a soap opera for an aspiring actor.  Let us know of any other outrageous purchases made using the Black Card that you know of!

So what does it take to get your hand on the heralded black card? It’s not easy.

Requirements

Although this card is the world’s most exclusive credit card, it’s requirements are not that of a basic credit card. To get the card you must possess the following:

• One year of $250,000 cash flow on ANY American Express Card
• Hold a US address
• A near perfect credit history.

Along with this you have to pay an annual fee of $2,500, although being accepted into the cards

The annual fee is $2,500, and although the card is generally by invitation only, any Amex cardholder who believes he qualifies can request that his account be reviewed for eligibility.

The Benefits

First of all, the AMEX Black Card is not your regular card. Having the card is only one part of the experience in being a Black Card Member.

With this card, AMEX also assigns a personal “gatekeeper” with a direct phone number and email address to each person. These people have been known to create “impossible” dinner reservations and make non-existent sports or arts tickets exist. If the card holder happens to lose his wallet, one call will refute all cards and issue new ones. That’s right, one call.

Also, the AMEX black card has an Emergency Assistance Program in case the member is away from home. This “On-Star” system has the legal, financial, and medical information of the card holder available 24/7. It can also be used to replace missing passports, prescriptions, or even arrange for an air ambulance anywhere on Earth, and cover all inoculations.

The cardholder also has private access to high-end stores and boutiques. These include Gucci, Neiman Marcus, and Saks Fifth. These holders are provided a personal assistant to help with the shopping. ALSO, if the items purchased are damaged, they can be replaced up to $50,000 a year. The card also extends any buyer’s warranty by an additional 3 years, regardless of how long it is. Yes, this includes a life time warranty.

The cardholders also have memberships in the FHR (Fine Hotels and Resorts) and SLH (Small Luxary Hotels) which entitles them to free room upgrades, late check-outs, and a personal staff there to meet their every need. The card also means complimentary breakfast for two.

Also, the frequent flier miles for this card are a little better than any other. The benefits boast:

• First-class flight upgrades
• Personal travel assistan
• Access to 450 upend airport lounges in 80 countries
• A Private Jet Service membership, where the member can buy flight time on a private jet or buy into a “time-share” jet.
• Finally, a membership in Space Adventures, the company that is promising tourism in space. The cardholder gets credit towards the payment of a space flight.

If the cardholder were to die on the trip during a flight, their family would receive as much as $3.5 million for death reimbursement through the card’s travelers insurance. Their luggage is also insured up to $2,000. If a flight is delayed beyond a few hours, the card holders are issued $250 for hotels or cabs.

So all in all, the AMEX black card is not such a bad deal. If you have the money, chances are you should have this card. But one has to ask . . . now that the government is bailing out many of these institutions, who is footing the bill for such luxuries?

In our blog, what are common fees for balance transfers, we explained that most credit card companies charge a percentage of the balance transfer amount without applying a cap. For example, if you transfer $1,000 and incur a 3% transfer fee, the amount that will show up on your credit card will be $1,030 (principle transfer of $1,000 + $30 transfer fee). Three percent is a common transfer rate across issuers. The only Bank that I'm aware of with a cap on credit card balance transfers is Chase (e.g. $75). Typically, the amount you owe per month on your transfer will be 2% to 3% of the transferred balance.

So, if you transferred $10,000 using a zero percent introductory transfer rate, your first monthly payment would be around $258 ($10,000 transfer + $300 transfer fee = $10,300 x 2.5% = $257.50). Once your introductory period expires, your monthly payment should then revert back to an amount significantly less than the 2.5% because you are now being charged interest which is when the credit card company begins making money.

Cash advances on your credit card should be avoided at all costs. The primary reason for this is the extraordinarily high interest rates (average is around 21%) that are charged on this type of transaction. Not only do you begin incurring a high interest rate right away, but you are also charged the same type of fee that you are with a balance transfer. Therefore, on a cash advance of $10,000, your first month's interest will cost you $175. If you look to pay your interest balance off each month, your first monthly payment would be $432.50!

If you qualify and need immediate cash, call your credit card company and request balance transfer checks. Most credit card companies now offer these with monthly statements. If your next statement includes one of these, you might want to tear one off for a rainy day. This way, you can use the funds to pay off other credit card balances or fund something else, like a downpayment on a car. If you don't qualify, you may want to consider a loan from a friend or contacting your local bank.

Other Resources:

• Beware of Hidden Credit Card Fees
• Sidestep Credit Card Fees
• Credit Card Offers: What's the Catch?
  

If you’re considering one of the many balance transfer cards, you’ll want to do a little homework first.  Though the first and most important item that most of us focus on with balance transfer cards is the promotional or introductory rate, it’s important that you also consider the regular APR as well as any fee that you’ll be charged and whether there is a cap or minimum/maximum limit on the fee. 

Some credit cards will charge a percentage of 3% or more but they’ll offer some protection for large balance transfers by putting a cap or limit on how much the fee can be.  In general, the max caps for balance transfers are somewhere around $75.  However, if a card doesn’t have a cap and you want to transfer $5,000 for instance, you could be paying as much as $150 ($5,000 x 3%) for the transaction. 

In spring of 2006, Chase created a bit of an uproar when they eliminated caps on many of their balance transfer cards. Caps and transaction fees can vary dramatically from credit card to credit card. And, bottom line, the only way to know for certain whether a balance transfer card is a good deal or not is to check the fine print located in the disclaimer when you apply.

Other Resources:

• Low Interest, No Fee Credit Cards
• The Truth About Transfer Fees
• Watch Out for Hidden Credit-Card Fees  
  

In the world of credit cards, the saying time is money should really be “timing is money,” especially when the topic is the importance of making payments on time.  Once you’ve found a great credit card offer like a 0% interest balance transfer card or a great rewards card with a low regular interest rate, you’ll need to make certain that you make each and every payment on time, every time.  Defaulting on your payment even once (meaning making a payment after the due date) will at the very least, result in a late payment charge – sometimes as high as $35 or more, and can even mean that your special interest offer will go away. 

One great way to ensure that your payments are made on time, every time is to find a card that offers free online account management and automatic bill payments.  You should be able to arrange to pre-schedule the minimum amount due, which will ensure that you never have a late payment. 

And, if your financial situation will allow, an even better situation is to set it up to pay your balance in full each time.  Both options are usually included in any automatic payment program. However, while automatic payments can be a great time saver and safety net, you’ll still want to make certain you review your statements each and every time. 

Even credit card companies can make mistakes and good account management requires time and attention.

Other Resources:

• The Student LoanDown: The Importance of On-Time Payments
• HOWTO: Be Savvy with Credit Card Balance Transfer Offers
• Be Debt Savvy with Credit Cards