The report was “Credit Card Wars” and discussed some of the pitfalls credit card users face. Meghann chimed in about how retailer’s zero-percent finance offers are often like credit cards and how consumers need to be wary.
Good advice at 3:30, the Wall Street Journal guy says how when you do 0%-interest balance transfers, you need to make sure you’re paying all your other bills on time too. If your credit score gets riskier, the credit card company sometimes reserves the right to jack up your rates. — BEN POPKEN
UPDATE: Transcript added inside.
Blonde Woman: But first we look at America’s ongoing battle with debt. The average American household now owes more than $8000 dollars, on average, to a credit card company. Are we swiping those cards too much or are we just not making smart decisions about what cards to use? The answer may be a little bit of both, when we take a look in this morning’s “Credit Card Wars”.
Voiceover: Americans love credit.
Man 1: I have 15 credit cards.
V.O.: Americans have six hundred ninety-two million credit cards. If you stretch them end-to-end you could stretch them around the world at the equator, then draw a line from New York to Perth and still have 300 miles of cards leftover. And all those cards carry a big bill! Americans have a grand total of $711 billion dollars of credit debt. That’s nearly equal to the gross domestic product of India. But that isn’t keeping the credit card companies from luring more customers with attractive perks and talk of low rates.
Commercial V.O.: Choose any airline with no blackout dates.
Ralph Andretta: Our points never expire, there’s no earnings cap, and you can use them for almost anything. You can download iTunes, you can dine in a great restaurant, go to a Broadway premiere, you can walk between the ropes at a golf tournament, you can even fly in space.
V.O.: As credit card companies try harder and harder to find new customers, the junk mail solicitations have even started landing in e-mail inboxes. Consumer watchdogs, especially wary of retail stores who offer credit cards, say the math just doesn’t add up.
Meghann: What you don’t realize is that you’re getting into a credit card. You know, this is an incentive for you to sign up with a credit card to incur some debt.
V.O.: But with discounts on clothing and free vacations on the line, shoppers are finding it hard to stop swiping.
Blonde woman: As part of our partnership with the Wall Street Journal, we turn now to Ron Lieber, he writes the financial column called “The Green Thumb” in the weekend edition of the Wall Street Journal. Good morning to you.
Ron: Good morning.
Blonde woman: So give us some advice. If you’re not going to just cut up all the cards, which would probably be the best thing for some of us to do, realistically, should you have a couple cards, should you have a lot of cards? Everybody’s going to have some credit debt, right?
Ron: Sure, well you should have the right cards for the right job, I mean these things are, they’re essentially power tools. I mean they could do a lot of damage if you don’t know how to use them correctly, and they can help you manage your finances and keep track of your expenses and earn a lot of rewards if you use them properly.
Blonde woman: Alright, so if you’re going to just have a couple, how do you find, first of all, the best interest rates?
Ron: Well the problem with trying to find the best interest rate is that the interest rate that you’re going to be offered is totally going to depend on your credit report and credit score. So it’s important to know what that is. And then, you know, what you get in the mail, may well depend on what the score is, what other kinds of activity you have. So you can’t necessarily say, “This company’s going to offer you the best interest rate,” you just have to see.
Blonde woman: When you get an offer of a low rate, is it good to transfer the balance of what you had over to the new card? Is that a good idea?
Ron: Balance transfers can be a terrific tool. Often there are a lot of companies that’ll offer you 0% for as much as twelve months or longer, but there’s a couple things that you have to watch out for.
Blonde woman: Which are?
Ron: Well you start, first of all, with paying very close attention to the fees. They may charge you a flat fee of $50-
Blonde woman: A one time fee that has nothing to do with the interest rate-
Ron: A one time fee, has nothing to do with the interest rate, called a balance transfer fee, and, you know that may be a flat fee or a percentage of the balance that you’re transferring over.
Blonde woman: And you also told us something interesting, that I had no idea, you have to watch during that first year of the 0% rate that you don’t miss a payment or you’re not late on a payment, not only to the credit card company but other bills you pay?
Ron: It’s crucial to pay on time, it’s crucial to pay everyone on time. You want to read the fine print, you want to see the rules, you want to pay your car company on time, you want to pay your electric bill on time.
Blonde woman: The card company kind find out if you paid your electric bill late? And then raise your credit card rate?
Ron: Right, because they’re checking your credit score and your credit report, and if it looks like you’re paying everybody else late, then all of a sudden you’re a higher credit risk so they reserve the right to jack up your rate.
Blonde woman: The fine print. Tell me about rewards and perks. ‘Cause everybody’s going for these cards now that have rewards. Start with the miles, frequent flier miles. Is that a good way to go and what card?
Ron: Sure, miles is a great way to go. You’ve got to decide, you know, whether you want miles or merchandise or cash. If you want miles, one good card is the Starwood Preferred Guest American Express card. Now that’s a hotel card, right? But you can turn those hotel points into frequent flier miles and the effective yield is 1.25 miles per dollar spent on the card.
Blonde woman: What about cash back?
Ron: Cash back, there are a couple good ways to go. There’s a card from Chase that’s only available in their branches now, but that earns 5% back at gas stations, drug stores, and grocery stores, 1% everywhere else. There’s a card from American Express, the Blue cash card, that does something similar. And a couple cards from Fidelity that are 1.5% back.
Blonde Woman: And for merchandise, real quick, you say American Express is the best?
Ron: Membership rewards has a good program with Amex, a lot of merchandise, you know fancy things do, that you can’t necessarily get from other cards.
Blonde woman: Excellent, great advice. Thanks so much.