On the surface, the HSBC Platinum MasterCard with Cash or Fly Rewards and the Capital One Venture card seem comparable. If you like to travel, you might find their pitches enticing: Both let you earn points that you can use for plane tickets. But a cardholder charging $1,500 a month would get $460 worth of points in the first year with the Capital One card and only $180 with HSBC’s card.
Whether you’d uncover that difference is debatable. Sure, you’re a savvy consumer. But these days, picking the right rewards card—the most heavily marketed type—seems to require an advanced degree in mathematics. Many have complex formulas for determining how much cash or how many points you’ll earn. Some cards come in two versions: one with no annual fee and another with a fee but higher rewards.
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New travel-card perks
Up-front bonuses of 25,000 to 40,000 points have become common among travel cards, and occasionally you’ll see a juicy 100,000-point offer. Travel cards often charge annual fees, though many are waived for the first year. But the perks that come with many airline cards—expedited security clearance, priority boarding, free checked luggage, and access to airport lounges—can more than makeup for the fee. “It’s silly not to get an airline card with free checked baggage because it pays for itself after a single trip,” says George Hobica, publisher of the Airfarewatchdog website, which tracks airline deals.
If you have a basic cash-back card, rewards should be straightforward. But some cards have formulas that are anything but. Chase Freedom, Citi Dividend, and several Discover cards out rewards of up to 5 percent, but only on quarterly rotating categories, such as home-improvement purchases in the spring and hotels in the fall. You have to opt-in each quarter to qualify for those rewards. And you have to plan your spending around each category, which can be difficult because sometimes the categories might not be announced well in advance.
That kind of complexity can make it difficult for cardholders to maximize their rewards. Shane Tripcony, 42, of Little Rock, Ark., a father of two and entrepreneur who runs a Web marketing and development company, has two credit cards but is not earning the kind of rewards he could be. He and his wife, Erin, tend to use cash or a debit card for gas and groceries rather than credit, even though they pay off their balances in full and on time each month. He wants to boost his cash-back rewards by charging his children’s private-school tuition—almost $15,000 a year.
Too many cards?
Jordan Leventhal of Cleveland, a 23-year-old college student who works as a paramedic, has accumulated eight credit cards. He has a good credit score and doesn’t carry any interest-charging balances. He tries to match up to his purchases with the cards that pay the highest rewards for what he’s buying. But by spreading his spending among so many cards, he’s missing out on opportunities to maximize his rewards.
For instance, he wisely opted into the summertime offer by the Chase Freedom Visa card that paid 5 percent cash back on gas and restaurants—his two biggest spending categories—and 1 percent on everything else. But he has also used other cards to buy gas and restaurant meals, missing out on getting 5 percent back on those occasions. He also has a United card that he took out to get a free-flight sign-up bonus; he uses it for nontravel purchases but is a long way from earning another reward ticket.
Paying down debt
Rewards cards aren’t suitable for cardholders who carry a balance, because they generally carry higher APRs than other cards. Robert Muthumbi, 41, of Flowery Branch, Ga., owes $5,425 on his Capital One card, which has a 22.9 percent APR, and $5,000 on a Discover card at 16 percent. For several years, he’s been in “repayment mode,” paying two to three times the minimum balance due each month in an effort to clear it. The issuers have refused to reduce his interest rate.
Muthumbi’s best option is to transfer the balances to a card with a lower APR. Many cards offer 0 percent financing for 12 to 18 months, though most charge a transfer fee of 3 or 4 percent up front. After the introductory period ends, the APRs will probably jump to between 12 and 22 percent. So Muthumbi needs to figure out how long it will realistically take to pay off his balances. If he can do it in 15 months, his best bet is the Chase Slate card, which offers 0 percent for that time period and no balance-transfer fee if the transfer is made within 60 days of opening the account.
Cards aimed at people with little or limited credit history often have huge startup costs, monthly maintenance fees, and giant interest rates. We found real lemons, such as several cards from First Premier Bank that charge $170 in first-year fees. The Matrix Card by Discover from Continental Finance had high ongoing costs. In the second year, a $12 monthly fee kicks in on top of a $75 annual fee, for total charges of $219 a year. Its 29.99 percent APR is also among the higher ones we’ve seen, though the 36 percent APR charged by several First Premier cards eclipsed that rate.
Consumers Union, the advocacy arm of Consumer Reports, supported reform that led to the so-called Schumer Box (a required summary of the costs of a credit card in promotional materials, named after Sen. Charles Schumer, D-N.Y., who as a congressman championed the legislation) and the passage of the Card Act of 2009, which outlawed certain abusive practices by issuers. But today’s confusing card deals suggest that issuers need to make their deals more understandable to typical consumers—not just for those with math degrees.