Minimum/Maximum Credit Card Charge Amounts

It’s not uncommon to see signs at small stores and cafes proclaiming a “minimum charge card purchase” of $5, $10, or even $20. Likewise, car dealers and commercial vendors sometimes cap credit card acceptance at a few thousand dollars. Consumers rarely realize that merchant agreements require retailers to accept credit cards for purchases of any size.

Credit Card Surcharges

Under credit card acceptance agreements, merchants can charge a “convenience fee” when customers pay with plastic to bypass a laborious, customary way of making a purchase. For instance, theatre box offices and county utility boards can ask for a few dollars extra in exchange for keeping you from driving downtown and standing in line for an hour. Otherwise, there’s no permitted surcharge that retailers can add to your bill for paying with credit. (Some states also have no surcharge laws.)

Credit Card Identity Verification

Some retailers now request to see a driver’s license or other government-issued identification when accepting credit cards. While this practice seems like a reasonable way to deter fraud, recent identity theft cases and thrown these activities into question. “Skimming crews” that gain access to a credit card’s magnetic stripe data can also capture a customer’s date of birth, home address, and driver’s license number from a quick snap of a pinhole camera. Therefore, credit card merchant agreements prohibit retailers from requesting photo identification unless a customer has forgotten to sign the signature strip on the back of a card.

Visa, MasterCard, American Express, and Discover all handle complaints about merchants directly from their websites or via special customer service numbers. In practice, however, the best way to voice your displeasure with a retailer’s payment practice is to vote with your wallet: find a vendor that’s happy to accept your credit card.

• Hiking the interest rate on one card to 33%
• Dropping the credit limit on another card from $5,000 to $2,000
• Reducing cash-back rewards by about half
• Adding fees for frequent-flyer-mile participation
• Canceling one credit line without our prior knowledge

Our reaction to each one of these letters was probably like yours: lots of unprintable cussing, followed by the shredding of at least two platinum cards. However, I remembered that a knee-jerk reaction to credit card changes rarely ends well. In fact, I can think of five reasons why you may just want to accept the “new normal” of American credit. Put the phone down if your card falls into any of these categories:

1. Your Rate-Jacked Credit Card Was Your First

I loved the student credit card I got when I was a college freshman. I got a free radio. And I regret canceling it when the rate got jacked, because I didn’t know then that the average account history makes up a big chunk of your credit score. Having a 20-year record with a single lender would definitely have improved my FICO.

2. Your Credit Card Balance Is Under 10% of Your Credit Limit

If a lender springs a new annual fee or a higher interest rate on a card with most of its credit line available, breathe into a paper bag before cutting it up. Credit utilization counts for a large portion of your credit score. Your ratio could skyrocket, triggering higher interest rates and lower limits at some of your other banks.

3. Your Balance Is More Than Zero

If you owe $1,000 on a $2,000 credit limit, your utilization will jump from 50% to 100% after cancellation. That’s because lenders report the amount owed on cancelled accounts as the maximum credit line. Some scoring models may even state your overall utilization over 100%.

4. You’re Shopping for a Car, Home, or Insurance

Sudden changes to credit status can make it harder for lenders to lock a low mortgage rate or a favorable auto loan deal. Many insurance carriers also look at credit reports to determine life, home, and auto policy premiums. A flurry of cancellations can make you look like a higher risk to some companies.

5. You’ll Need a Balance Transfer to Handle Your Old Card’s Payoff

If you’ve preserved enough available credit on your other cards to absorb a rate-jacked balance, you’ll still want to cool your jets. No-fee balance transfers have nearly disappeared, and you’ll pay as much as five percent up front to bounce a balance from card to card. If you decide to shop for a new balance transfer card, be sure to do your research and find the best deal.

That said, go ahead and break the rules when tempting credit lines endanger your well-being. The old “credit card in a block of ice” trick doesn’t always work–I’ve seen grown Americans wreck merchant terminals with freezer-burned gold cards. If surviving a drop in your credit score offers a better path than the siren song of an open credit line, cancel your card. Remember to seek the assistance of a fee-based financial advisor or a non-profit credit counselor if you think you need real help with your finances. For more information on fee friendly cards check out our editor’s picks for the Best Credit Cards of 2009.

President Obama signed the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 last May, and, in response to the promise of tighter restrictions, credit card companies scrambled to boost revenues by establishing rate increases prior to the February 2010 date for enacting the legislation. The new law will ban so-called arbitrary rate increases on interest, establishing guidelines for regulating “usury”, and enforcing statutes that determine when an arbitrary rate exceeds the law.

The lender’s immediate increases sparked further responses on the Hill and many legislators are now considering a 16 percent maximum rate for credit cards along with a $15 cap on late payment fees. Consumers beware: credit card companies may find another tactic to respond to new laws and protect their profits.

A Balancing Act: Regulating Credit Card Usury

Credit card companies view any cap tactics as restraint of trade. And while a credit card rate cap looks good to consumers at the outset, the inevitable response by banks and lenders may be more unpleasant that people imagine:

Since credit card companies more easily extend the best credit terms to consumers with excellent credit scores, you can expect fewer loans made to credit card holders with poor–or even average–credit. That means fewer risks for credit card companies even as their rates are capped. And the net result is that average borrowers and those with risky credit may have to look elsewhere to borrow.

Even consumers with good or excellent credit histories may pay the price for the caps, since the companies must shift terms to those who can shoulder the losses created by interest capping. That means, without high rates currently levied on average or risk borrowers, credit companies could raise the rates on borrowers who presently enjoy seven-to-ten percent rates. Bye-bye.

You can also expect your fees to go up as credit card companies could use higher fees to offset a loss in earnings through the Credit CARD Act. The party may be over.
History Repeats Itself with Increased Fees

Down under in Australia six years ago, the central bank forced credit card companies to slice interchange fees in half, resulting in a less-than 1 percent charge. Retailers had argued for years that the fees they paid banks for merchant account transactions was unfair.

Consequently, Australian banks fought back by cutting perks, rewards programs, and slashed grace periods between a date of sale and the initiation of interest. For those who kept rewards programs, the companies hiked annual fees. Profit-taking seeks its own level. The average annual fee for an Australian Gold Card, The New York Times reports, is $140 Australian per year, increased from the $98 Australian rates charged before the new laws took effect.

Is There a Better Way Toward Reform?

Certainly regulations to curb and penalize unfair lending practices are a great beginning. But someone is going to have to pay for the caps imposed by the credit CARD Act, and it looks like it’s going to be consumers–who are already cash-strapped–and merchants, who are likely to pass the increased costs on to consumers.

The root cause goes untreated as we continue to believe in a culture of borrowing and spending. Irresponsible parents teach their children the power of plastic without educating them about consequences. Annual interest rates on outrageous payday loans, borrowing against anticipated tax returns, and pawn loans can exceed 400 percent. Capping is a small measure that can backfire while our deepest credit problems go unchecked.

Even consumers who have good credit scores or who pay on time may face startling news under the first of many sweeping policy changes made by credit card companies in response to government regulations. New lender’s behaviors will swing into effect in February 2010, when the first provisions of the government’s Credit Card Accountability, Responsibility and Disclosure Act roll into law.

Get Ready for Sudden Account Closures

The Credit Card Act requires that your lender inform you within 45 days of any policy terms and changes, and many borrowers have already witnessed sudden shifts in rising interest rates and shrinking credit lines. While many Americans have maintained solid credit ratings through the economic slump, credit reporting agencies discovered a six-point drop in scores over the first three quarters of 2009.

That means that even good credit customers with years of brand loyalty are being jettisoned by banks and other lenders who are scrambling to regain equilibrium. They’re canceling accounts and letting customers know after the fact. Imagine making a purchase and being informed by the register clerk that your card has been declined!

Consumers Dazed and Outraged

Organizations like The New York Times, The Wall Street Journal, and ABC News have all published stories of stunned consumers who had maintained good credit yet found themselves shipwrecked on a dead piece of plastic, without hope at a restaurant, hotel front desk, airport terminal, or cash machine.

The very act of canceling your credit card without notice can send a ripple across your life as you find:

• Your “credit utilization” number–a detail that shows how much credit you’ve used or still have available–is popped towards the high end, informing lenders and weakening your credit score.
• Your insurance premiums suddenly leap, responding to the risk of a credit score turned suddenly downwards.
• Your failed transactions created by cancellation spark immediate penalties and fees.

Even if you’ve been diligent and worked hard to establish and maintain solid credit, you can fall prey to the latest tactics of credit card companies. Burned up? You should be!

Consumers Fight Back

First, let’s look at some likely scenarios for the new year when the act takes full effect. Credit card companies will probably raise interest rates when consumers try to shift their balances to another card. Your lender may also reduce your credit line.

Credit cards that once were free to own may now begin charging annual fees. Owners of reward cards, prepare for charges. Another adjustment may mean banks will scrap grace periods of 20-25 days they currently offer consumers in which to retire the balance before interest rates apply. More reasons for consumer outrage.

If you hope to fight back, you’ll have to change your way of handling credit. The companies are changing, and so should you. To wit:

• Become Aggressive in Retiring Balances. You’ll have a better chance of fighting the high utilization stigma by keeping your utilization at 30 percent or lower. Banks may fight back by lowering your credit line, but you’ll keep your card.
• Create and Maintain a Healthy Emergency Find. Get back to savings. Hold sufficient cash in case you need it for a unexpected medical costs, a home or car repair, or an emergency flight to visit a family member.
• Have a Backup Credit Card. Shop around for a new card with low interest rates and no annual fees to use if your existing card is suddenly cancelled. Remember to use your backup at least once every six months, even if you pay it down immediately. Credit card companies may pick off unused, dormant cards like ducks in a row.
• Monitor the Credit Bureaus. All three of America’s manor credit reporting agencies allow you to receive a free report on your credit scores each year. Websites like AnnualCreditReport.com can facilitate processing. You may not need all the for-fee services charged by some credit reporting businesses, but having a simple notification service that pings you about any and all sudden changes can be worthwhile, especially if you’re applying for new credit from other lenders.

Account Closed? Now What?

You’re not powerless and you’re not alone. Many American consumers are already outraged by their credit card company’s behavior. Do what most consumers do when they’re mistreated: take your business elsewhere. If it was your primary banking institution that closed your card without notice, withdraw your funds and open an account elsewhere.

Search around for consumer-friendly lenders like credit unions or larger community banks with a history of good-consumer relations, such as Simmons Bank or USAA. But before you go, write about your outrage to the president of your current credit card company and contact your local consumer protection agency or better business bureau.  Call or write your local and state legislators.  Find out which representatives have posts in banking or financial institution committees.

Despite their inconsiderate treatment of loyal customers, banks and lenders are responsive to a poor public image.  Organize visits to their headquarters or to offices of legislators.

There is a lot of fuss surrounding FICO scores and credit scores in general. These scores need to be understood for what they are, a tool to guide companies in the management of risk. FICO is designed to predict the likelihood of a customer defaulting in the next 12 months. FICO is designed to replicate the types of decisions that people made in the good ol’ days. It’s important to consider the things that can affect your credit history. It is my view that people shouldn’t look only to manage their FICO, but to actually exhibit the behaviors that make them a good credit risk. In other words, pay your bills on time and don’t take on a lot of debt. Good FICO scores naturally follow with these habits.

So what do lenders REALLY look at? When I was a credit analyst, (yes, actual people do make some of those decisions) our decision-making process was based on the likelihood of the customer to pay back his or her obligations. The three questions we asked surrounded Ability, Stability, and Willingness to Pay. There was no magic formula; it was the overall picture of the consumer. First, I must establish that the applicant is capable of paying.

1. Ability: In short, can this person afford the payments based on the income information provided? Does he or she earn enough to manage this credit card account? Does the credit report show signs of additional expenses that aren’t disclosed in the application?

There are many ways to evaluate a person’s ability to pay obligations. Ability is primarily a function of income and the amount of debt. The point here is that the consumer should have enough money to make the payments consistently. So what does this mean to you? Based on your monthly income, will your credit card payments be less than 10% of your take home pay? This is a rule of thumb, and the less credit card debt you have, the better off you are in my opinion.

Your other obligations include payments for your home, car, student loans, other card debt, and any sales finance accounts. If your income isn’t enough to cover these, expect to be declined for “insufficient income.” Companies look to see if your debt level is in line with others in the income band listed on your application. Another question is will you be able to make these payments in an ongoing fashion? This leads us to the next category.

2. Stability: Does the applicant have a consistent source of income? Is he or she likely to in the future? This question is answered by information about the length of time someone has been on a job, lived in a home, and used credit.

I also look at whether applicants are renters or homeowners and what the nature of their employment is. Someone who has been in the same job for a long time has established consistency of income. If someone is relatively new to a job (less than six months), I would look to see if he or she has remained in the same industry to indicate growth of experience over time.

Living in the same place for a while can indicate that your current financial scenario has been similar for a longer period of time. Also, people who move around a lot may be more difficult to contact if they enter collections than those who stay put. Again, these are not “make or break” traits, they just help flesh out an evolving picture of an applicant. Now that I’ve established that the consumer has a relatively stable source of income that can support the loan payments, I need to know that paying on time is not an unknown concept.

3. Willingness to Pay: Regardless of income and cash flow, has the consumer paid bills in a timely fashion in the past? I had a friend who was the daughter of a multi-millionaire. In her own right, she was also a millionaire. She always complained about being declined for credit; after all, she could afford the payments.

What she didn’t realize was that she failed test three. By being sloppy and not paying her bills on time, she sent lenders the message that she was irresponsible and probably wouldn’t pay them on time either. Showing that you’ve made on time payments is the best way to demonstrate to a potential lender that you’re likely to pay it on time as well.

Unpaid loans are obviously a loss for a lender, but late payments are problematic too. They are expensive because they require collection efforts. It’s hard for banks to tell the difference between someone who occasionally mails a check late and someone who really can’t pay, so an analyst will assume that the consumer had problems making the payment.

So think about your own Ability, Stability and Willingness to Pay. Would you lend to you? Do you have a history of paying your bills on time and receiving steady income? If so, you’re probably a pretty good risk. As a follow-up to this article, in the next weeks, we will examine two potential borrowers and see how one loan officer would make a decision.

I would welcome your comments in our active credit card forum.

1. The Credit CARD Act Is Discriminatory
Sec. 201.B of Reg B issued by the Governors of The Federal Reserve states, “The purpose of this regulation is to promote the availability of credit to all creditworthy applicants without regard to race, color, religion, national origin, sex, marital status, or age (provided the applicant has the capacity to contract); to the fact that all or part of the applicant’s income derives from a public assistance program; or to the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act. The regulation prohibits creditor practices that discriminate on the basis of any of these factors.” Emphasis added.

The Equal Credit Opportunity Act was a major step forward in the advancement of rights for all adults. There was a time, not so long ago, when wives were denied credit because it was taken for granted that their husbands could handle finances for them. How is requiring the parent of someone under 21 (a legal adult in the United States) not the same? The CARD Act completely negates this principal and should be considered contradictory to Reg B. The “test” for discrimination in lending is “disparate impact”, meaning that ANY policy that resulted in one of the protected groups being adversely affected (including under-represented) was de facto discrimination. That’s why banks can’t get around these explicit provisions in marketing by using zip code (commonly known as redlining–it’s illegal), telephone listing (historically many households had the phone listing in the husband’s name), and other such less-than-savory tactics.

When I was a credit analyst at a credit card company, we were always taught that Reg B could easily be remembered by the idea “be fair.” The government regulates that banks CANNOT discriminate on many factors, including age. By requiring “independent means” of paying back the debt (namely, bank statements), students effectively will not receive credit because the system investment required to manage deposit verification simply is not worth the hassle. There’s a reason mortgages have upfront fees to cover that sort of data gathering. Would this part of the act have passed if we said that senior citizens had to have their children sign on their financial obligations? Once we attack this principle, what’s next–an IQ test to enter into a credit agreement?

2. The Credit Card Act Is Too Limited in Scope
So let’s be clear, someone under the age of 21 cannot be trusted with a credit card but can be trusted to go to war for this country, vote and participate in the democratic process, and can TAKE OUT A STAFFORD LOAN from the Department of Education? The average credit card debt for graduating students is said to be about $8,500. If a student takes all of the Stafford loans available to a dependent student, he/she has $27,000 in debt. It could be argued that this debt load is far more damaging than a credit card. After all, default on some student loans and your wages could be garnished. To limit the student marketing restriction for lending products only to credit cards seems to be woefully inadequate–if we do indeed believe that students can’t manage their finances. Students should feel safe now that Congress is watching out for them (sic).

3. The Credit CARD Act Will Stifle Innovation
Bill Gates was a Harvard drop out when he founded Microsoft. Facebook was founded in a dorm room. What other brilliant ideas will be stifled because a young entrepreneur does not have a credit card to cover his or her expenses? Ever tried to buy an interview suit with a debit card when there’s only $45 in your checking account and your tips from bartending Saturday night haven’t come through? Credit cards are a great float tool for students.

Also, they allow students the means to explore the world. Many students use their credit cards to travel for Study Abroad, knowing full well that they will need to pay for it later. Credit cards made it possible for me to travel all over Europe in a way that I will never have the freedom to do as a working adult. This experience has made me a better citizen of the country and the world. This experience was worth having a little bit a revolving debt when I graduated. The ideas that I developed during my study abroad year made all the difference in my ability to relate ideas and experiences to my work life. I would have a much narrower perspective without it and would be a less creative and innovative employee and citizen.

4. The Credit CARD Act Will Hurt an Entire Generation’s Access to Credit
Since FICO and length of credit history are key drivers of lenders’ decisions when making AND pricing auto and mortgage loans, a lack of credit history will make lenders less likely to grant credit to these students later in life. Imagine being offered a car note 200 basis points higher than someone ten years older than you because Congress made it illegal for you to have a credit card. Don’t forget, car insurance companies use credit scores to quote rates. Scary isn’t it?

In short, in their rush to pass a bill that would institute new reforms to the credit card industry, Congress forgot to ask themselves about the unintended consequences. Students are an easy target because they have fewer lobbyists screaming on their behalf. Once this law is enacted, a student who is denied credit based on this law should launch a test case for discrimination. Lawyers, start your engines.

But now, consumers are going to face a “triple whammy” under changes made by lenders that will alter the credit card industry and end whatever benefits consumers thought they received by leapfrogging their balances. Small business owners have already felt the heat as new federal capital regulations burst the easy pipeline to credit lines. Under federal laws that go into effect next February, lenders will be forced to apply your payments to the account portions that are attached to the highest rate of interest. In reaction, many lenders may extend longer deals on “no interest” offers. Ultimately, it can reduce finance charges.

Here are three trends that may materialize under the new regulatory provisions:

Balance Transfer Offers Will Bear Higher Interest Fees

In reaction to lower interest rates, some lenders will increase the percentage on balance transfer fees when consumers come looking. The practice is already underway. While fee limits are cut, banks are already raising transfer charges to recoup their losses. Bank of America saw it coming and boosted its balance transfer fee to 4%. Other lenders, including HSBC, Chase, and Discover have taken offers with 5% fees to the marketplace to test the waters. If you’re paying upwards of 20% on an expired offer for financing electronics or furniture, the up-front 5% transfer fee may look attractive. But the increased fees come with limitations on benefits you might receive for other transfers. It can be tricky.

New, Shorter Introductory Periods Will Spark Faster Repayments on Balances

Previous promotions granted consumers as much as a year before they accrued finance charges. But with the new realities, account managers are looking to earn interest as quickly as possible. That means shorter introductory periods that automatically apply finance charges over the promotion period of your balance. Ouch. The CEO of Discover Financial let loose in a conference call his expectations for dramatic cutbacks on the durations for balance transfer promotions. This is probably a harbinger of how other lenders will react.

Balance Transfer Offers for Zero Percent Will Evaporate

Credit card companies still think that balance transfer offers are great bait for attracting customers from their competitors, but they’ll need to turn a profit under the new conditions. Hence, you’ll find more transfer promotions in the 2.99% to 4.99% range than the zero percent rate consumers have come to love. The net result is that you may have to take the hit of paying small finance charges in lieu of paying higher interest rates that you assumed with prior promotions.

The “triple whammy” reflects the credit card industry’s drastic need to stop the bleeding on its own debt, which means that consumers–as always–will bear the brunt. That may mean the game of credit card musical chairs is over.

Regulators have kept an eye on minimum payments on credit cards for years, with guidance in 2006 from the Office of the Comptroller of the Currency (OCC) to raise minimum payments for many banks. Many credit card issuers responsded by changing their minimum payments to 1% of the principal balance, plus any interest charges and fees. At the time, lawmakers expressed hopes that new rules would prevent the strung-out accounts described by Dubner and Levitt. Likewise, representatives from the banking indusrty complained during Congressional hearings that higher mandatory credit card payments unfairly limited lenders’ abilities to generate profits. The world didn’t end, and American cardholders grew accustomed to paying off more of their balances during each cycle.

Chase Voluntarily Rises Minimum Credit Card Payments

Recently, at least one major card issuer has exceeded government expectations by requiring some customers to pay an eye-popping 5% of their total balances each month. Chase will be raising minimum payments to 5% on some accounts starting this month. Some media outlets have portrayed the actions of Chase as anti-consumer. In an economy where household cash flow has become more important than ever, surrendering 5% of an outstanding account balance can feel burdensome. However, heightened monthly minimums offer “tough love” that can actually elevate our country’s financial climate in three ways:

 Consumers preserve more of their capital
 Banks recapitalize their loans more quickly, limiting risk.
 Consumers are less likely to pay other fees, such as over limit fees, since debt repayment is accelerated.

Banks Put Profit at Risk, Yet Consumer Advocates Cry Foul

From a profit standpoint, banks have everything to lose by adopting this strategy. Card issuers must adapt their screening process to find only those prospective customers who can afford substantially larger monthly payments. Marketers must find ways to encourage more frequent card use to offset lost interest earnings with higher credit card interchange fees. And banks find themselves in the unlikely position of making decisions in the best interests of their customers instead of for the benefit of a bigger bottom line.

Yet, some consumers and consumer advocates still don’t see it that way, especially working Americans who live paycheck to paycheck. Using a credit card to weather a sudden illness or a job loss has become all too common. Asking customers to surrender more from their paychecks or benefits can seem unfair and cruel. And economists worry that paying off too much of our credit card debts during a recession can delay a much-needed recovery driven by spending.

Still, higher minimum credit card payments could be exactly the kind of tough medicine we need to help accelerate our country’s long-term savings. Some consumers still see the change as “retaliation” by credit cardissuers against recent industry reforms and that is unfortunate. Credit card issuers are simply trying to limit their risk and we as consumers are actually benefiting from this in the long run.

Going forward, banks must work even harder to help educate consumers about credit for higher minimum payments to become widely accepted and understood. And consumer advocates, regulators, legislators and members of the media need to look at both sides of the coin.

Just my two cents — I would certainly welcome your thoughts in our active credit forum!

1. The Ailing Airline Industry Wants You to Pay for Your Tickets

Airlines have taken knocks in the press lately for hiking fares and adding a laundry list of fees. One airline has even announced that it would charge a transaction fee to customers who try to pay unexpected fees in person at the airport! It’s not surprising, then, that carriers have scaled back frequent flyer programs.

For example, some airlines that once offered round trip travel at 20,000 miles now require 25,000 miles for the same destination. Also, airlines can even require fees to maintain a balance from year to year. Carriers compete on price more often than on loyalty these days, making most frequent flyer credit cards beneficial only to true road warriors (many of whom probably prefer to stay home when they’re taking time off).

2. Redemption Fees Clip the Wings from Frequent Flyer Airline Programs

Even if your purchasing patterns suggest that you could earn enough frequent flyer miles to make a reward credit card worthwhile, check the fine print. Some credit cards may charge a redemption fee to transfer your reward points into actual frequent flyer miles. Moreover, most generic airline reward cards that are not branded with a particular airline won’t even allow you to transfer your points to your existing frequent flyer mile accounts. You could also even be “double-dipped” by an airline that charges a ticketing fee when you want to exchange your miles for a flight!

3. Steep Costs Ground the Added Value of Airline Credit Cards

Airline reward cards feature some of the highest annual fees and highest interest rates of all credit cards. Although marketers at the airport might try to tempt you with “added value” features, like upgrades to elite status or no blackout dates, annual card fees as high as $100 can make a typical traveler feel less than valuable. You may be among the minority of Americans who charge enough to justify the cost of all those perks, but definitely do the math.

Here’s a quick scenario to consider. If you are only spending a $1,000 a month on an airline miles card that has an annual fee of $80, it will take you over 2 years to earn a free ticket (assuming that you have to earn 25,000 points for a roundtrip ticket). During that time, you will be out $160 in fees (2 years X $80). If the cost of your flight is $250, the true value of your $250 ticket is only 90 bucks ($250 less $160). Obviously, not exactly a way to get rich quick or slowly for that matter.

4. Cash Back Credit Cards Will Likely Get You There Sooner

Fortunately, there’s a less expensive alternative that can still help you cover the costs of that dream vacation. A few cash reward credit cards, like cards offered by Charles Schwab and Fidelity Investments, offer 2% cash back on all purchases. In the scenario just described above, you would have earned a generous cash rebate of $500 ($25,000 X 2%) had you used a cash reward card.

Considering the additional fact that very few cashback cards have annual fees, it’s easier and quicker to take that dream vacation to Hawaii using a cashback card. Not only will your card rebate likely be higher, you have more choice. For example, you can use your cash rebate to pay for discounted fares on any airline you choose to any destination you prefer. Or you could use your cash reward for any other purpose under the sun.

The bottom line is that if you want to get to your destination quickly and inexpensively, paying with a cash rewards card is the best way to go. You control your itinerary, not the airline, and you avoid a lot of fees in the process. Simply put, “cash is king” my friend (particularly in this environment)!