Best Credit Cards Archives

The 5 Minute Guide To Reading Credit Card Terms And Conditions

Flickr Photo Creative Commons — *Photo: Philip Taylor PT*

What Are Terms And Conditions?

I applied for my first credit card in 2007. On that fateful day, I was approved for a cash back card, a small signup bonus, and given a starting credit score – all with no annual fee. The glory days were here! I was finally an adult, with a credit card.

But it wasn’t until I received the credit card in the mail that I finally spent some time reviewing all the fine print – the terms and conditions. Printed on fine, tissue-like paper was a series of rules – all in small, black font – that extolled the consequences of misuse and the agreements that I must follow. What had I signed up for?!

Now, as a frugal, thrifty, and penny-pinching maverick I’m here to tell you a simple truth: You need to read the terms and conditions before you signup for a credit card. Isn’t that simple? When you signup for a credit card, you’re entering a formal contract with a bank to repay all debts – no matter what. As a member of this contract, it’s important to spend some time reviewing these documents to make sure it’s a fair deal.

The Schumer Box

In 1988, Senator Charles Schumer from New York introduced the concept of a box (“The Schumer Box“) that would graphically outline the details of credit card agreements and accompanying materials. The Senator’s idea became a law and took effect in 1989. Essentially, the Senator was pioneering what education and literacy experts were arguing for: An easier way to read financial documents.

Included in the Schumer Box:

Any annual fees
Annual percentage rate (APR)
Other APRs (i.e., balance transfers, cash advances, default APRs)
Grace period
Other transactions fees

Jargon and complicated contract law had largely prevented people without excessive degrees – or letters behind their name – from understanding what the heck was being said. The Schumer Box was an easy interface for everyday people, and it increased comprehension across socio-economic divides.

But in 2007, as I applied for my first credit card, the Schumer Box didn’t help me. I wasn’t paying attention, and was just too “grateful” to realize I need to critically evaluate the documents in front of me. These days it’s easier to find out more information online. For example, you can read a review of the Chase Sapphire Reserved card and get some critical details at a glance. This is key: Better to prepare than react when it comes to finances and debt. Actually, it’s better to prepare in every facet of life – finances should be no different.

The Credit Card Act Of 2009

In 2009, the Credit Card Act was signed into law. The goal of the legislation was to

“…establish fair and transparent practices relating to the extension of credit under an open end consumer credit plan, and for other purposes.”

With the lofty desire to enhance the transparency of credit card terms and conditions, the CARD act encouraged companies to create shorter documents that were easier than ever to understand. A variety of stipulations such as overlimit fees and distress-inducing repricing actions were nearly eliminated. These fees normally hit low-income and lower-middle-class households. They were being nickel and dimed by a variety of these increases and fees – with a seemingly unregulated market for swift changes that targeted consumers trying to pay off credit card debt.

Isn’t it ironic that a law aiming to increase transparency used direct financial jargon to explain the purpose? Nonetheless, “open end consumer credit” is a credit card and/or revolving line of credit that is issued by a bank to a consumer (you). The Act told credit card issuers to find ways to explain their products, terms, and liabilities in plain English. But like so much legislation in Congress, it didn’t have teeth.

“One of the expressed goals of the CARD Act was to improve transparency in the credit card market, but the Act did not explicitly mandate any changes in the length and form of credit card agreements.”

Despite the cautious recommendation to streamline and enhance comprehension, credit card companies actually conformed to these new standards and tended to aid in the presentation of credit card terms and conditions. Between 2008 and 2012, the average word count of agreements fell 24.4% (see picture below).

*Average Word Count Decreased Between 2008 To 2012 For Terms And Conditions*

Flesch-Kincaid Reading Analysis of Credit Card Terms and Conditions

Along with shorter agreements, the banks issued terms and conditions that were easier to read. In 1948, Rudolf Flesch introduced a simple mathematical formula that suggested a grade level equivalent for the amount of text, sentence structure, and word choice. Using this method of analysis, the credit card companies have lowered the average reading level from 11.5 to 9.8 from 2008 to 2012. By doing so, the banks made agreements more accessible and easier to understand; frankly, they became fairer instruments, as both parties could better understand what they were agreeing to.

What Does This All Mean For You?

Next time you’re thinking about signing up for an awesome rewards credit card, think about the terms and conditions you’re ultimately agreeing to. Scientifically speaking, it’s easier than ever to understand and comprehend what a credit issuer is offering. By taking some time to critically evaluate what’s being shared, you can save yourself lots of heartache down the road. Use the Schumer Box to check for ancillary fees and exorbitant annual percentage. Use the CARD Act’s regulations to read carefully through the agreement and don’t hesitate to ask the issuer questions before you sign the dotted line.

Do you read the terms and conditions before you signup for a new credit card?

Why Google Wallet Needed To Release An Offline Debit Card

By Frugaling 4 Comments

Last week, I wrote an article bringing attention to the Google Wallet Card. This decision to print and give away a free debit card will usher in a new epoch of payments, banking, and budgeting. But when I finished writing the story, I realized there was a missing piece to all of the current press: Why did Google release an offline debit card in the first place?

Google Wallet was announced in 2011, and released as a smartphone app in September of that year. After over two years of development and company expenditures, critics suggest the experiment has failed:

…Google Wallet is a dud, at least to date, despite the company’s expenditure of an estimated $300 million in real money on its development… (USAToday)

Earlier this year, rumors began swirling that Google would be releasing a physical debit card to be paired with its Wallet service. Unfortunately, ahead of the company’s major press event, Google I/O, they scrapped the release and went back to the drawing board. Despite being considered a “dud” by some analysts, Google Wallet was already beginning to catch on – largely credited to the payment processing of Android apps and Google Play purchases.

Google is already sucking in that purchase data on many fronts — between Google Play payments, Google Checkout on the Web and also advertiser payments — in addition to the dedicated Google Wallet project. (AllThingsD)

On November 20, 2013, Google decided to follow through with the release of a physical debit card (issued with a Mastercard logo). Commentators and speculators suggest that the Google Wallet platform needed to increase users’ payment options. As much of what we buy in stores takes a physical swipe of a card, these stories suggest that the debit card would help pay for physical goods. But tech writers have questioned Google’s decision to enter the physical world:

It’s surprising because Google exists to get people off physical media and into virtual digital everything. They’ve also been a leading force in mobile payments with both Android and Google Wallet. (ComputerWorld)

The persistence of plastic suggests we’re a lot farther than we think from a world where true mobile payments are the norm. (Washington Post)

Thus far, the primary hypothesis seems to center on the idea that Google has admitted to the failure of its online-only payment platform – it’s kowtowing to the payment processing gods and issuing a physical card. These articles and writers don’t give enough credit to this decision or Google’s business acumen. The company is in the payment processing business for the long haul. Much like their advertising platform, which is considered to be the best ad system in the world, payments give vital details about user habits, transactions, and life outside Google. There’s money in that big data and Google is about to start drilling.

With the release of a debit card, Google Wallet is not admitting defeat nor is it suggesting we have a “lot” further to go before mobile payments become the norm. Rather, the Wallet platform is injecting itself into the current psychological modality for purchasing goods for evolution down the road. Users of the product will begin to natively track and spend via the online platform. This will likely cause people to start defaulting to this payment system.

Meanwhile, Google has laid a diverse framework and future for the payment system by interlinking it with Gmail, Google+, and a growing number of online services. Now, you can send money via Gmail, swipe for gas, and receive a payment – instantly and securely. But Google needed a card to segue purchasers to this mobile platform. Eventually, when people are convinced that the online, digital model works better than physical, debit card swipes, Google will win.

Every recent service Google has announced has required a segue from the search model. From Drive to Plus to Wallet, these services have been built-in to a diverse set of products. Drive is now caked into Gmail attachments. Plus is a necessity for YouTube comments. And now, Wallet… Necessary for Google Play purchases and about to grow into another multi-billion dollar industry for Google. Making a physical card was just another segue for Google to make users’ switch to a mobile payment model more seamless.

An era of mobile payments is nearly here. In the next 4 to 5 years, we’ll likely see a massive switch to digital payments. Just like the banking industry today, there will be multiple players and competition. The major difference will be that tech behemoths will compete directly with big banks. What’s clear is that the players that can create a natural blend of on and offline payments now will win later.

Master Your Budget With Google Wallet Card

By Frugaling 7 Comments

Credit, Debit, Or Cash?

I’m constantly looking for ways to budget better, as it can be challenging in a new, digital epoch of swipes and signatures. Last month, I decided to follow Dave Ramsey’s advice and only use cash. For 2 weeks, I banished all credit and debit cards from my wallet.

Over the course of the experiment, I struggled to use cash. Despite all the whimsical benefits of budgeting via cash and envelopes, the good ol’ paper currency seemed antiquated and made for difficult money management. As a near-religious Mint.com user, all of my transaction history and spending trends were lost in the data-less use of cash.

Now, there’s a new solution called the Google Wallet Debit Card!

Cash Didn’t Work… For Me

Recently, I was interviewed by a writer for LearnVest.com that asked whether I was still using cash – had I made the switch more permanently after the experiment? I laughed and said, “No. In fact, I don’t have any cash in my wallet at all.” I haven’t really used cash as a primary payment method since middle school. When I got to high school, I opened a savings and checking account, and the debit card quickly replaced the greenback.

After the experiment, I was left floundering around the questions about how to budget better. As an avid swiper, I realized the consequences in spending that could occur. Researchers from MIT’s Sloan School of Management found that:

In studies involving genuine transactions of potentially high value we show that willingness-to-pay can be increased when customers are instructed to use a credit card rather than cash. The effect may be large (up to 100%) and it appears unlikely that it arises due solely to liquidity constraints. In addition to demonstrating the effect, we provide a methodology for detecting it, and our findings suggest a source of variance to test alternative explanations.

The Fourth Option: Google Wallet Debit Card

Yesterday, Google announced a perfect solution for the digitally-inclined: Google Wallet Debit Card. The card is just like any other; in fact, it’s a Mastercard with the power of Google. It can link credit cards, bank accounts, and loyalty cards in a neat little application for iPhone and Android. But now, there’s a new, physical card to help making shopping easy.

Ever since Dave Ramsey introduced the envelope system with cash to manage a spending plan, I’ve been looking for ways to incorporate that philosophy into my life. Google Wallet is finally that solution. The debit card uses the balance in your Google Wallet, which functions much like a PayPal account. Once your balance is empty or too low, the purchase won’t go through.

What Makes Me Excited About This New Product?

The Google Wallet Card operates much like a prepaid debit card, except it’s entirely digital, reloadable, and has hardly any fees. I have the power of a bank by utilizing Google Wallet’s features. I can send money to friends, receive payments, and now I can spend the money wherever I go.

The most important part is that it allows you to set strict budgeting goals for each week. For instance, let’s say I want to limit my food spending (groceries, lunches, and dinners) to $400 per month. If I load my card with $100 per week, and stop swiping after that – because there’s nothing left – I can effectively stick to my budget. Just like the envelope system, I’d know exactly how much is left (digitally) – no more, no less.

My Credit Cards

By Frugaling 2 Comments

Nearly five years ago, I applied for my first credit card. It was the Citi Dividend Platinum card (still available here). Much like my academic career, I poured over websites and researched credit card companies to find the best rewards. I had no established credit history, but I believed in building it – here was my first step.

The Start

Opening up that paper mailer was an honor because the bank entrusted me with a credit line (~$1,000, if memory serves me)

. The platinum card sparkled against the light, and I felt like one of the few and proud. Most college freshman that I knew didn’t have cards or lines this large. I was rewarded with powerful bonuses and cash back that made me value the card. Why would I use cash or a debit card, when I could make 2 to 3 percent back on my purchases with this credit card? I saw the card-less as suckers, and missing out on extra money.

The long con is more insidious. For the first couple years it was a hard and fast rule: Treat the credit card as cash and only spend what was in my checking account. I was the epitome of reserve and control. Occasionally, I talked to friends about getting a credit card – the necessity of it. How could you not take advantage?

More Rewards

Before I knew it, I was looking for a better rewards card. The Hilton credit card by American Express (Amex) advertised a sweet bonus – a free night. Once I received the award and looked for places, it was my first taste of discomfort. The points didn’t really amount to much and the places were hardly aspirational. Amex was an aspirational brand, though. Maybe they had something better?

Within a couple months, I applied for a Premier Rewards Gold Card. With no annual fee for a year and benefits that occupied pages and pages of documentation, this card seemed even better than the rest. Putting this in my – previously bulky – wallet was like carrying salvation. I was safe from bad purchases and broken down cars. Amex would be there for me.

Better Rewards

As the annual fee rolled around, I canceled the Gold card and applied for another. I wasn’t ready to plop down ~$125 per year. But, I was searching for a card to fit the bills. I applied for the Blue Cash card, which offered incredible cash back for grocery store shoppers and gas. The card came with no annual fee, too. With friends like these, I was hooked on Amex.

I became an evangelist for all things charge and credit card. Look at all these benefits! All the while, an eerily stereotypical spending pattern emerged. My income just wasn’t enough for the amount of spend. More importantly, I was buying things I didn’t need (i.e., a Specialized $1,000 road bike, surround sound system, and upgrading my cell phone every 6 months). It’s one of the most embarrassing purchase patterns of my life. The debt and spending was fueled by a lot of factors, but my emotional well-being seemed like the common denominator. It felt tied to my emotional health – like never before. Feel crappy? Spend.

Seeking Control

After I became healthier, my spending leveled out. Around this time, I started monitoring CreditKarma and Mint religiously to check my credit scores and transactions. Even though I was spending less, I was still comparing and applying for credit cards. The Chase Sapphire card seemed like the best of breed. I applied and received it. Finally, a no annual-fee card with the benefits of an Amex charge card. This became my favorite card. I felt like canceling everything else, but I couldn’t. By doing so, my credit score would plummet. The amount of credit accounts and duration are two important variables. It was a Catch-22 and the cards won.

Over the latest semester, I traveled constantly, and it made me consider a travel rewards card. After pouring hours into research, I chose the American Airlines credit card by Citi with a 50,000 point bonus. The bonus was applied to my frequent flier account and will be used for some adventure down the road.

The Present and Future

A 2012 study published in the Journal of Consumer Research found shoppers who charge an item to their credit card focus on the benefits of the purchase, while those who pay cash focus on the cost. (Source)

Nowadays, I have just under $30,000 in credit limits. There’s no doubt that this is established to encourage uninhibited purchases. This isn’t free money, and there’s nothing special about this number. As I work to abolish my debt, I am looking to lower this limit and close some accounts (even if it hurts my credit score). Four credit cards feels like too many. That might be influenced by my minimalistic tendencies, but I think that reducing the number will encourage greater frugality.

I didn’t write this to exclaim the wrongdoings or ill-conceived nature of credit cards. Every now and then I might highlight a credit card or new bank offering on the site, as I do believe there are opportunities. You can certainly be rewarded for owning a credit card and managing your spending. If there’s one lesson to be learned: The amount of money in your bank account is a distraction to the fundamental, dangerous patterns of some credit card use. Watch out for the patterns and be careful. Don’t be afraid to ask for help if it gets out of control.

Why Google Wallet Needed To Release An Offline Debit Card