The Premium Credit Card Trap

Consumer alert, we're looking at credit cards right now and the credit card trap. You might have gotten announcements for a card with fancy awards, it sounds appealing but it also comes with high fees and it might also lead you to spend a little bit more as well. Joining us with more insight, Business Insider's Emily Stewart. Morning Emily. Good morning. Listen, I fall into this category, I'm well aware of it. What is the trap that traps the most people as this whole credit card industry continues to evolve? Yeah, so I think a lot of people are aware that these credit card companies, especially on these really premium rewards cards, have really raised some of these fees, costing almost $1,000 just to have the card every year and a lot of people kind of do a lot of mental gymnastics to justify these cards and the companies encourage this, right? They will tell you, Chase for example on American Express say, if you get our premium rewards cards, you have $3,000 worth of rewards that you can reap if you kind of play the game right. But I think the question is, A, are people playing the game right? Are they using this money for things that they would already be spending on? And also sometimes people spend more on credit cards. We know in general that people spend more on credit cards than they do when they're using cash because it just doesn't feel as immediate and with rewards cards they kind of really do encourage us to spend even more and sometimes on things that we wouldn't buy otherwise. Yeah, no doubt about it. I mean, listen, for me personally, I do this re-budgeting, re-balancing every year to decide if the annual fee is worth it. I travel a lot and I have travel cards, so to me it works out, but for others I know it doesn't. But I'll say this, Emily, one of the things that I know a lot of people get tripped up on, my wife for example was looking for a card, but for a lot of them to get even the initial perks, you have to spend $3,000 or $5,000 in the first couple of months and she's like, I'm not going to spend that money and therefore what's the point of having that card? Right, I mean, and that is a trap that I think people do fall into, right, where if it is, are you actually going to spend that $3,000, are you going to spend that $5,000? A lot of these cards also are kind of high-end coupon books, right, so they'll get you like a discount at Lululemon and Equinox, Lyft, StubHub, and that's one where people do need to kind of ask themselves, would I be buying these things otherwise? Would I be buying something at Lululemon so that $75 quarterly credit is worth it for me, or am I showing up at Lululemon spending $200 and, you know, okay, getting a $75 discount, but these are still $125 I wouldn't spend otherwise. And a lot of people, I think, you know, we kind of aren't honest with ourselves, sometimes we tend to be more hopeful that yes, that spending is worth it, that yes, this is money we're going to spend, and maybe we're not as honest with ourselves about, like, I probably wouldn't be staying in this fancy high-end hotel were it not for this $300 credit that kind of I'm justifying it to myself that it's free, but it's not really free because I'm spending $800 a year on this credit card. Two things real quick before we wrap things up. One, as a whole, is it getting, is the industry getting better or worse when it comes to finding that balance between having a credit card and then the perks that may or may not come with it? Meaning, should we just go with a non-annual fee basic credit card? And question number two is, along the same lines, I know some experts in the past have said, go with a cash back card if you're going to spend at least, you know, you're getting cash back instead of perks. What do you think? I mean, I do think in general, the industry, it's certainly getting more expensive, and a lot of the time the points are getting more complicated to use, and I think that's one where people just have to ask, like, is this something that I really want to pay attention to or not? And I do think on cash back, you know, for some people, for a lot of people, that might just be the better answer. You know, I think one thing also to drive home is that with any of these annual fee cards, if you are not paying them off at the end of every month, they are not worth it. Every single personal finance expert will tell you that, and so I think that's one where just people kind of need to really think about, you know, is this worth it, or is it better to just do something a lot simpler, and is that going to make my life easier? Yeah, and those fees are no joke. I think with a platinum card, it's $800, $900 a year now, so you get that on your statement when you thought you had your card paid off, you got to start paying all over again. So keep that in mind, do your credit card math, figure out what's best for you. Emily, great insight. I appreciate that. Joining us from Business Insider this morning. Thanks so very much. Thank you. You're very welcome, Marissa. Those were great tips. All right.