The True Price of Perks

THE RIGHT FIT
Bankrate.com carries a wide variety of information on credit cards, including daily updated rates on standard, gold and platinum cards. Go to “Rebate or frequent flier cards” and you’ll find charts that list more than 100 cards with easily compared terms: interest rates, annual fees and rewards.


DEALS OF THE DAY
Top Sirloins from Omaha Steaks? How about half off portraits at J.C. Penney? Discounted lodging or airfare?

Many credit cards offer such rewards on a temporary basis. Cardweb.com keeps a running tally of dozens of such incentives and when they expire, along with other consumer information for those researching card offers.

Incentive programs associated with credit cards (and debit cards) are everywhere. They can yield cash rebates, merchandise and frequent-flier miles, among other kickbacks. Truck stop fuel cards, too, usually offer rewards.

How much should you weigh the value of these perks in choosing a card?

Not too much. First, ask not what your card will do for you, but what you will do for your card. Namely, the interest rates you’ll pay, especially if your credit card balance keeps you in a full nelson. Say you keep an average balance of $3,000. The difference between one year’s interest on a 16.99 percent card ($510) and an 11.99 percent card ($360) is $150.

“If the interest you’re paying outweighs the reward you’re getting, it’s not really worth it to have that card,” says Linda Sherry, editorial director of the advocacy group Consumer Action.

Check the annual fee, too. It can range from zero to more than $100. (A few credit card companies will waive this fee if you ask.) Some of the best cards, available to big spenders with a good credit rating, might have a high annual fee, says Greg McBride, senior financial analyst with Bankrate.com. However, as long as those customers pay off their balances monthly, the generous rewards can offset the high fee. “Whether lower interest rates or more attractive perks, those are offered to cardholders who have the best credit,” he says.

Measuring the relative merits of reward programs – say, comparing the dollars you’d have to charge to earn enough points to snag that wide-screen television versus what those same charges would yield in a cash rebate – never comes up in discussions with owner-operators, says Howard Abrams of PBS Tax & Bookkeeping Service in California.

Some programs are easier to grasp, such as getting 1 percent of your purchases back in cash. But that, too, points to the basics. If the cash-back card’s interest rate is 5 percentage points higher than a plain-vanilla card’s, your interest payments could easily wash out a 1 percent cash rebate.

All things being equal, though, an owner-operator is an “ideal kind of customer to use a cash-back rewards card” because of the many expenses, Sherry says. But pay early: “You could conceivably lose the rewards if you’re not paying on time.” Read the fine print to learn all potential drawbacks.

And be sure to put a credit card in the name of your business and use it only for business, advises Kevin Rutherford of The Alliance, a Florida-based owner-operator financial services firm. That way you can easily deduct interest payments from income taxes.

“My best advice is to find a good card with a good rate and stick with it,” he says. “Just don’t overuse it.”

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