The Hidden Cost of Credit Card "Rewards"
A: I admit the permanent marker sounds a bit intense, but there's a payoff for being credit card compulsive. Assuming he hasn't crossed the line from focused to fanatical—meaning he isn't driving his wife crazy—then I think it's great that he works to get the most from his plastic.
My main concern is whether he's read the fine print to determine how beneficial his rewards cards really are. Quite often they carry substantial annual fees that can decrease or wipe out the value of any perks. For example, an ad might promise 5 percent cash back, but in reality, you have to charge thousands of dollars before you can get it, or the rate might not apply to most of your everyday purchases. One of the hidden traps of many rewards cards is an extrahigh interest rate, so if he and his wife occasionally carry a balance, a rewards card isn't a smart bet.
When it comes to interest rates, being vigilant is worth your time. A recent survey found that more than 75 percent of people who called their credit card issuer to push for a lower rate were given a better deal. Let's say you had a $3,000 balance and reduced your interest rate from 15 percent to 10 percent. You could shave more than $1,000 off the total interest paid if you were to send in just the minimum amount due each month. With a strong credit rating (a FICO score of 700 or higher), you might be able to go even lower than that. In "Play Your Cards Right", I review the moves everyone should make.