Thursday, February 23, 2006

Plastic matchmaking

Credit cards can be insidious. If you're on a bare-minimum budget or have wildly variable paychecks, I think they're a bad idea. I just recently killed off the last of my college credit-card debt, and I suspect I ultimately paid as much in interest charges as I did on purchases. For several years it was a very good idea for me not to have access to any plastic other than my Visa check card.

However. If your monthly budget is working relatively smoothly and you're not inclined toward massive impulse spending, credit cards can be not only convenient but fiscally prudent. Lenders are fighting like crazy for business, and now that no-fee cards are the norm, there are some fun offers available.

At my previous job, I was issued a green corporate Amex for which I paid the bills directly. Personal use of the card was encouraged, since the company got some sort of kickback benefit on funds slushed through the corporate cards. Between business and personal spending, I ran thousands of dollars each year through the Amex. Eventually I realised that I was having no problems paying the bills on time, and that I should check out rewards programs and whatnot that would give me a benefit off all that credit-card spending.

Amex wanted $75 or so to hook my corporate card to its Membership Rewards program. I wanted something free, so I started browsing offers. For any still clinging to a classic green Amex, or any other fee-bearing card, SmartMoney has a nifty article explaining why you're being screwed.

My dad swears by his cash-back Discover card, and cash-back cards have an obvious appeal. They also have an obvious drawback: cash is the most expensive rewards currency for lenders to deal in, and they naturally want to minimize payouts. All the restrictions, caps and fine print associated with such cards made my head hurt. Still, for those who want to go that route, there are some helpful guides available to the various offers, including Credit Card Goodies list of cash-back rewards offers. Amex Blue Cash seems to be leading the list of cards various bloggers are recommending right now. MyMoneyBlog has a pile of posts about various cash-back cards.

Mile cards are popular, but I already have a million frequent-flier miles I have trouble using. Again, too much hassle.

So I decided to take a look at my spending, figure out where big chunks of my money go, and look for rewards cards targeting those areas. My theory is that since goods and services don't have the same hard costs as cash, credit-card companies will be more generous with those rewards. And hey, if I'm going to take my $100 cash back and spend it on books, I might as well get $100 in books credit directly.

Because books and food/entertainment are my biggest discretionary spending categories (beyond travel, and I already ruled out miles cards), I focused on those areas. Amazon's Visa card terms didn't dazzle me (basically, a $25 Amazon certificate for every $2,500 in spending on the card), though in retrospect, they seem to be par for the course. The average across most companies seems to be rewards valued at around $100 for every 10,000 in accrued points (usually accrued at the rate of $1 in spending = 1 point).

So I ended up getting Amex's In NYC card, which has no annual or rewards-enrollment fee and offers points redeemable for theatre, dining and music gift certificates in the city. For me, it's been a great deal. I don't understand Amex's formula, but I seem to be accruing points much faster than $1=1, and so far I've cashed in points for free spa services (which is the only price point at which I can afford such things) and several $100 dining vouchers.

If I weren't a fancy-restaurants junkie, other cards would make more sense. But with so many options, there's a good card out there for pretty much any financial profile. Finding yours can be a great benefit.

(Young and Broke recently mentioned a card I hadn't heard about which sounds really intriguing: American Express One, which funnels 1% of purchases into an interest-bearing savings account. That could be a nifty way to jumpstart an emergency fund.)