Recently at an event in Toronto, I found out that my credit card (Capital One Aspire Travel World Mastercard) is being discontinued. I’m pretty heartbroken because it was the best travel rewards card available to Canadians, and I’ve only had it for 2 years. :| But it has served me well in that time, getting me free hotel stays and free flights to Toronto and Hawaii.
So I’m on the hunt for another rewards card. The only problem is, based on my spending, the best ones for me are American Express. And while I’m not opposed to an American Express card (even though I’ve had some problems with them in the past), so many places don’t take American Express (especially when traveling), so I’d have to get a secondary credit card as a back-up.
Here are my results, using the RateHub.ca credit card tool:
I’m leaning towards getting the ScotiaBank Gold American Express Card, and then getting a no-fee Mastercard or Visa as a back-up.
For those that are wondering, I put every purchase I can on my credit cards, but never carry a balance. I like using credit cards because I can earn points for my spending, and track every purchase I make. But they’re only valuable tools if you can pay off the balance every month. Points don’t mean anything if you’re paying more in interest every month than what the rewards are worth!
For those who also have the Capital One Aspire Travel World Mastercard, have you come up with a replacement card yet?
P.S. if you haven’t used the RateHub credit card tool, it’s really good. There’s so much information there, that it makes comparing cards really easy. :)
We’ve all been in this scenario before: as you approach the cash register to pay for your purchase, the clerk tempts you with an additional 20 per cent off your purchase if you sign up for their store credit card. And even though you know you don’t need another credit card, and you rarely ever shop at the store, you can’t help but waiver just a little bit. After all, everybody likes saving money, right?
Store credit cards can be enticing, especially when they offer a deep discount on the initial purchase, a rewards program for frequent shoppers, or a “no payments” plan for a certain time period.
When I was 19 years old, I applied for a Sears card with a $500 credit limit. As a promotion, I received $10 off my first purchase, which might not seem like a big discount, but to a teenager making minimum wage, it represented over an hour’s worth of work. I also earned rewards for my spending – I’m pretty sure it was 2%. To me, this was the dream scenario. Not only did I work at Sears (and was able to get an employee discount, plus first-hand knowledge of sales), but I was also excited to have my own credit card. It made me feel grown up.
I thought I would be able to handle such a small credit limit, and I told myself if I ever made purchases on my Sears card, I would pay off the balance immediately at the cash register. But when Christmas came that year, I ended up maxing my Sears card in order to buy presents. And it wasn’t until four years later that I completely cleared the balance and canceled the card.
The Sears card was my first and last experience with a store credit card.
If you are a frequent shopper at a store, and are able to keep a zero balance every month, a store credit card can be a good way to save money. But for the rest of us, here are four reasons (from my own personal experience) why store branded credit cards are not a good idea:
High interest rates
Most of the time, a store-branded credit card will have an interest rate that is much higher than a regular card – with rates generally between 20 to 30%.
Additionally, store credit cards will often have a very tiny minimum payment, usually under three per cent. My Sears card had an interest rate of 29.90% and a minimum payment of $10 or one per cent of the new balance – whichever was greater.
You usually won’t benefit from the rewards program associated with a store-branded credit card unless you are a frequent shopper. For example, the Sears card offered a $10 gift certificate for every 1,000 Sears points earned. At a rate of 2 point for every dollar spent, there are plenty of no-fee credit cards available with similar, and more flexible rewards systems.
Forced to shop in one place
When I had my Sears card, I felt more of an urge to shop there because I knew I could put my purchases on my store credit card. Even if I could have found what I was looking for at a better price somewhere else, I didn’t have the cash to buy it at the cheaper price.
Your credit score
Even if you pay your balance in full every month, many different things can affect your credit score, and that includes opening and closing credit accounts. Receiving a small discount by opening up a store credit card is not worth the potential headache and problems you could run into if your credit score prevents you from getting a good mortgage rate in the future.
What has been your experience with store-branded credit cards?
A few days ago I got one of those promotional letters in the mail from my credit card company. You know what I’m talking about: those low interest balance transfer incentives that seem pretty enticing if you’re in debt.
“Take advantage of your low 1.99% promotional annual interest rate. All balance transfers that you complete between now and April 23, 2013 will get this great rate.”
I always shred these types of letters, but I remember there was a time not too long ago where I actually did do a balance transfer of existing credit card debt onto another credit card.
It was 2006. I was a 24-year-old new graduate with a maxed out credit card. I knew my plan was to aggressively pay down my credit card debt, but I didn’t know how long it would take me. So I decided to do a balance transfer in order to lower my interest rate so that I could get out of debt sooner. At that point, I did most of my banking with TD, and I know that sometimes you can negotiate the interest rate down on TD credit cards, but I just decided to move the money onto a completely separate Visa with a promotional interest rate.
The credit card balance transfer ended up working in my favour because I didn’t take on any new debt, and I was able to stick to my plan and eliminate my high interest credit card debt in less than 5 months. But, I was really nervous about doing it because there are so many reasons to be cautious when it comes to credit cards.
How a balance transfer works
A balance transfer is essentially a marketing tool used by credit card companies to bring in more customers and more accounts. The credit card company will agree to move your existing high interest credit card debt to a new account with an attractive interest rate for a set period of time. This is extremely profitable for credit card companies because often times consumers can’t pay off their debt before the balance transfer promotional interest rate expires.
Once you have transferred your high interest debt onto your new credit card, you will have a certain period of time to pay off all of your debt before the promotional period expires and your interest rate dramatically increases.
Understand the costs and penalties
You should be aware that there is usually a transaction fee applied to each balance transfer you make. For example, when I opened up my MBNA credit card a few years ago, I noticed that they charged a transaction fee equal to one per cent of the balance transfer dollar amount. There are some cards that charge as much as five per cent! So if I had wanted to transfer $5,000 from another card onto my MBNA credit card, I would have been charged $50 for the transaction.
It is also crucial to make your monthly payments – both during and after the promotional period. Some cards will automatically increase the Annual Percentage Rate (APR) by five per cent if you are late more than once within 12 consecutive billing cycles. Ouch!
So please, read the fine print extremely carefully.
Create a repayment plan
The best way to take advantage of a balance transfer is to pay off your debt before the promotional period ends. Start by deciding what amount of debt you want to transfer, and then divide that amount by the number of months in the promotional period.
For example, I had $6,000 in credit card debt, and my teaser interest rate was going to last for eight months. So, I knew I had to make monthly payments of at least $750. It was an aggressive plan, but I was extremely determined to do it.
Related: How I got into debt … and out of it
I ended up eliminating all of my credit card debt in less than 5 months, and it was at that point I made a vow to never, ever carry a credit card balance again.
Stop relying on credit
In order for a balance transfer to work you have to stop relying on credit, because it’s obvious how this plan can go horribly wrong: if you can’t refrain from using your credit cards, you will end up with more debt once the promotional rate expires. And then you’re in trouble.
I think it’s important to note that you should only use a balance transfer promotion if you can control your spending on both the new, and the old card. The best thing to do is cut up both credit cards so you aren’t tempted to rack up the balance as you start to pay down your debt and free up credit.