Wednesday, June 24, 2009

Preparing to Eliminate our Credit Cards

With the new credit card protection legislation due to take effect in 2010, I expect that some of our credit card providers will try to charge us an annual fee to offset loss revenue. As far as we're concerned, any fee charging credit will not get any of our business. Why, because I only use a credit card for convenience and the credit card company already makes about 2% on all my purchases. We're not paying an annual fee to a credit card company that give them the privilege of making money on our purchases.

Currently, we have three credit cards, Costco American Express, Discover, and Visa. The American Express and Discover are cash back cards, while the Visa earns Holiday Inn Priority points.
  • For now, I don't expect the American Express to charge an annual fee, since Costco offers the credit card to members on a no-fee basis. In addition, American Express is the only credit card accepted at Costco. I suspect Costco has negotiated special terms with American Express and can keep the no-fee benefit. If American Express decides to charge us a fee, I will cancel the card and lose a small amount due in the annual cash back payment.

  • Historically, Discover has always been a no-fee card. It was the main reason I applied for the card many years ago. However, if they decide to charge a fee, I will also cancel this card. Of course, we will take any cashback award available, before cancelling.

  • The card that I expect will charge a fee is our Visa, issued by Chase Bank. Currently, we earn Holiday Inn Priority points, which can be exchanged for free hotel stays. Fortunately, the points are associated with our Holiday Inn account and are not tied to the credit card. Thus, if a annual fee is charged, we'll cancel the card.
  • In the unforeseen situation where all three credit cards levy an annual fee, we go back to paying with either checks or cash, since neither of these methods of payment carry a fee.

    For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

    This is not financial advice. Please consult a professional advisor.

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