Wondering whether the best cash back credit cards still have any rewards left in them? And what about those fees on balance transfer credit cards?
This is a guest contribution from Steve Sildon, Senior Editor for Credit Card Assist. Steve contributes frequently to the personal finance blogosphere, providing expertise, tips and advice on credit card offers and a variety of other credit-related topics.
The news reports about the economy have been tough to ignore these days. It seems like all we ever hear about is the credit crisis and the bad economy. While some of us have managed to avoid getting sucked into the housing bubble and subprime mortgage mess, nobody has been left unaffected by the overall credit crisis, myself included.
Up until recently, I had felt somewhat immune from the crisis. I had a pretty steady job, a pretty modest mortgage payment….everything just seemed peachy to me. So, what credit crisis was everyone talking about? Then one day, my credit card company closed my credit card account because of “inactivity”. Soon after that, I got another statement from another credit card issuer that my credit line was being drastically reduced on yet another account. That’s when it started to hit home for me — that yes, changes were happening with credit cards that are affecting us all negatively.
The simple fact is that all of the reliable sources of loans for many banks and credit card issuers have simply just vanished… almost overnight. In many ways, just like the mortgage market, the credit card market has also come to a sudden halt. Card issuers have made it much tougher to get approved for cards, credit lines have been slashed, and interest rates and fees have suddenly been jacked up. Card issuers are even shutting off access to their most credit worthy consumers and small businesses.
Being in the credit business, I reviewed what it is that was going on in the current credit environment. Here are some of the changes that are happening right now to the overall credit card market:
- Easy access to credit is no longer available.
- Standard features such as 0% APR are disappearing.
- Dramatic increases in fees for balance transfers (as this list of balance transfer credit cards shows).
- Rewards programs are being cut back sharply.
Credit Card Benefits, Rewards and Features: The Changes
1. Credit Card “Wild West”: No More Easy Credit!
Let’s be honest. We’ve all gotten used to easy credit. Anyone with a pulse could have fallen off a truck and qualified for a credit card. It was literally that easy. Those days are disappearing though. The “Wild West” of credit card marketing was fast and loose. Underwriting standards for credit cards were lax (to say the least) and card issuers profited handsomely from it. But now, with the economy falling off of a cliff, card issuers are back pedaling on many of their policies and marketing practices by reversing and even eliminating features and benefits on credit cards that all of us just assumed would be around forever.
2. End of 0% APR?
For example, take the “0% APR introductory on purchases for 12 months” — a feature that was practically a standard for new credit card offers over the past few years. Some card issuers have just gotten rid of the feature entirely, and card issuers that still have a 0 APR offer have restricted it in a big way. Most new card approvals with this feature will not be extended a full 12 months of zero interest. Even for the most credit worthy borrowers, zero percent offers will now usually only be extended for 3 to 6 months, at best. Simply put, we can no longer count on these no interest bailouts from our credit card issuers.
3. Balance Transfer Fees
Balance transfer offers have faded away as well. In the past, it was common to see “0% on balance transfers for 12 months” with no fee. Similar to the 0 APR on purchases feature disappearing, balance transfer offers are also rapidly fading from view. Card issuers that still do offer balance transfers now only give it to their most creditworthy borrowers. Even then, the offer is good for 6 months at most.
And what about the fees? In the past, most card issuers wouldn’t charge a fee to transfer a balance either, but that all started to change in 2008. Most card issuers retired their no balance transfer fee policies and started charging transfer fees of 3%. These transfer fees usually had a “cap” or maximum fee of up to $75. But now, the tide has turned completely on these charges — a 3% balance transfer fee with no cap or no maximum is now standard practice. So now, when dealing with major credit card issuers, if you transfer a $9,000 card balance to a 0% introductory offer, it may cost you $270 right off the bat. Ouch!
4. Rewards Programs Scaled Back
Rewards programs are also changing very quickly and not in a good way for us cardholders. According to CNN personal finance blogger Gerri Willis, rewards programs that provide cash back rebates, airline miles and other travel perks are being scaled back dramatically by card issuers, who are scrambling to protect any hope of profitability.
Some of the changes include:
- Higher spending “floors” that require more spending to start earning points.
- Higher point requirements for redemptions on travel perks and rewards.
- Much shorter expiration dates on points and rewards.
The rules for rewards programs have always been complicated and open-ended, giving card issuers wide latitude to make changes without any of us cardholders really knowing that it’s happening. In the past, I had always been able to stockpile my rewards points for a big redemption. Whether these were from cash back credit cards, gas credit cards or other specialty cards, I could always save my points for a big ticket item or upgrades on airfare without too much worry about changes that might diminish their value — but not anymore. Point values are being devalued by card issuers so the points are worth less than when they were first earned. It’s sort of like paying for a dime and getting a nickel in return.
Unfortunately, these rewards programs are going to keep changing this way in the near future. My advice to cardholders: avoid stockpiling your points. There’s simply no way to guarantee that your points will be worth their face value if you take a chance and wait to redeem them. So, all you cardholders who’ve earned rewards points should redeem them quickly. Their value will only continue to diminish as card issuers leave no stone unturned trying to stay above water.
We should all brace for even more drastic changes as rewards programs, cash back offers and zero interest card features continue to disappear rapidly from the credit card landscape.
So, how have all of you been affected by the changes happening in the credit card world? Has your credit line been cut? Has your rewards program disappeared? Can’t get approved for a card at all? I would love to hear from those who’ve been affected by any of these changes.
{ 7 comments… read them below or add one }
Something else really interesting is that now AMEX is letting card holders who already have closed their accounts, still spend the points accumulated for the next 90 days! Usually the points are forfeited when a card is closed. AMEX holders who find it makes sense to get rid of it should call American Express to see if they qualify for the plan.
Are there any other lenders offering this deal on closed accounts?
These deals make sense if they are trying to help the user spend a bit less since all the enticing features are removed but at the same time, aren’t the people who spend without worry the people who balance out the world?
Credit Cards are dangerous things, and being reliant on them (to the extent of using one to pay the other) is very dangerous. I for one am all for ensuring that people don’t get issued with what could amount to a financial death sentence too easily.
Hasn’t affected me yet. None of my limits have been reduced and none of my inactive cards were closed. I also still get plenty of offers, although fewer offers with 0%.
@Trevor – yes, but they are also the ones more likely to default. I read AmEx was offering some people $400 just so they would pay off their balance and go away. Didn’t offer it to me, though, but then my balance is $0.
@Goran – while you are right that many people rely too much on cards and using one card to pay off the other is most often a bad idea, 0% offers can be really helpful in some exceptional circumstances. For example, a couple of friends of mine took advantage of them when faced with cancer-related medical bills. In one case, 20% co-insurance added up to a mid 5-digit amount that a friend, who had only immigrated in the US a few years earlier and had no time at all to save as much, didn’t have. In another case, a friend’s mother (in Eastern Europe where government’s health care doesn’t provide expensive cancer drugs) needed a drug that cost over $9000 every 3 months. Both friends were able to use their cards and then shuffle the amount between 0% offers until they repaid everything in full without ever paying a penny in interest. In one case, the person is now in remission. In another case, the ability to get this drug gave the mother 2 extra years of good quality life.
Plus, a number of people made money on 0% offers doing arbitrage. I think it was the arbitrage that made banks introduce 3% balance transfer fees since these fees appeared long before the credit crisis.
Good article… I’ve been recommending that consumer shop their credit cards diligently… didn’t occur to me that the shopping would be harder. I haven’t seen same evidence in Canada … and rewards still seem available. Discussed further at –
http://www.mccollam.com/jakeblog/2009/03/i-aint-got-no-money-honey/
Long time reader, first time commenter! Before going on vacation last month I called to inquire about increasing my credit limit. Within 2 minutes I had been approved for a 425% increase in my previous credit limit…..Mistake? Maybe……but one in my favor at least!!
So, in answer to your question….I am still feeling pretty “peachy” in that I have not been affected any at all.
I just tried to do a balance transfer from a Citi card to a Mastercard that I’ve had for 10 years. I was denied a transfer, AND had my credit limit on the Mastercard slashed by $13,000 (just over half). I’ve had a lot of medical expenses in the last two years due to a severe car accident, and I’ve resorted to the card too much. Now my debt to available credit ratio stinks, and I can’t get approved for a refinance on my mortgage because of my credit score. I’ve never had a late payment, and I pay more than the minimum, but I’m in a tough place right now. If I have more medical expenses, I’m not quite sure what I’m going to do about them.