Mike FriedmanPro: Bonus Opportunities with Credit Cards
The pros and cons of credit cards, let’s start with the pros. Credit card bonuses are an excellent way to generate miles or cash quickly. Sign-up promotions of 50,000 miles or more, $500+ sign-up bonuses and/or tens of thousands of hotel points are not uncommon and, to some extent, are becoming the norm. $500 is enough for a good gambling budget, a few tickets at Disney World or even 2-3 hot dogs at Fenway Park.
Ongoing rewards are also excellent. If you like cash, many of them pay rebates of 2% or more. For miles and points, all of them pay at least one point per dollar, with most of them offering several bonus categories, as well.
Okay, that’s the good news. And now for the rest…
The single best way to beat the banks is also the simplest and most cost-efficient: Pay your credit card bill in full, every month.
Con: Banks Are Not Your Friend
Always remember this: Credit card companies and banks are not your friends. I know that that statement seems obvious, but Jennifer Garner and those Discover Card twins just seem so friendly…
The single best way to beat the banks is also the simplest and most cost-efficient: Pay your credit card bill in full, every month. According to a CNBC poll, an astounding 55% of US adults carry credit card debt. It’s not cheap debt, either, particularly if you hold a rewards card. Banks have to pay for those miles somehow. Interest rates can be upward of 20%, and the bank will give you the option to make minimum monthly payments as low as 2%.
Let’s put that in perspective. Suppose you made only a 3% minimum payment toward a $2,000 credit card balance at 20%. Here’s what would happen:
Yup, that’s right. You’d take more than 12 years to pay off the debt and pay more in interest ($2,110.98) than you did the original charge! I’m sure much of that debt is with people who have 0% interest promotions, but a lot more of it isn’t.
The Banking Bottom Line
Competition is driving rewards and sign-up bonuses to levels that we’ve never seen before. We want you to take advantage of them (and we really do appreciate it when you sign up for a card through our site). But, we also believe it is only fair and transparent to discuss the pros and cons of credit cards
It makes no sense to earn a 2% reward on a card where you pay 25% interest. Call your bank to negotiate. If they won’t, open a 0% interest card (preferably, one that won’t charge you a transaction fee to transfer the balance), take out a bank loan or even borrow from you second-cousin-twice-removed that you only see at reunions. Just don’t pay the banks any more than you have to.
