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A Word On Donald Trump’s Credit Card Crusade
The handwringing over Donald Trump's credit card interest rate cap looks overdone and comically so.
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Warren playing a smart game on this one. No downside…. Either she gets to show trump is full of hot air or she co owns some signature legislation.
Trump doesn’t care if it actually passes Congress or not. It’s another talking point at his rallies “I lowered your credit card interest rates!”. Even when it doesn’t happen he’ll still take credit for it and the 30% who make up his die-hard MAGA base will think they’re paying less interest every month because they don’t know how to calculate 23% of $4,839 divided by 12.
Won’t someone please think of the payment processors?
The truth is that the largest credit card issuers function as an unregulated monopoly. On Monday morning do the bank executives in charge of setting credit card rates use burner phones to establish interest rates for the week? No free market controls there.
The top 3 banks control over 60% (at least) of credit card balances.
“Nearly one in four US adults carries a balance.”
Out on a limb here. One in eight would lose access. Homelessness would rise to a certain degree.
If a credit card is what keeps someone from becoming homeless, then it’s likely just a matter of time(sad as it is).
Can anyone explain why there aren’t credit card rates that could work other than +20 or 10. Isn’t there a door 3. A stable genius, Claude and the select 100 should be able to come up with something.
For what it’s worth — not financial advice, btw — you can have a blast with credit cards once your score’s above 760 and you have a solid six-figure income. The thing to do is get cards that offer you a meaningful sign-up bonus (e.g., $500 statement credit when you spend $3,000 during the first 90 days of card opening), a prolonged 0% teaser rate (e.g., at least 12 statement periods) and cash back matching during the first year. Money’s fungible, so if you get, say, a $25k limit, you divert $10k-$15k in spending over the course of the year to a high-interest savings account, always being sure to keep the card balance <30% of the limit (above that hits your score), pocket your bonus, always use the cash back as a statement credit and then when the teaser period’s over, cash out of your high-yield savings account and pay the whole balance down to zero. It’s not a lot of money, but between the sign-up bonus, the cash back, the cash back matching and the 3.5% on the $15k over a year, you can basically make $1,000. If you do that for three of them at once (which is doable if you stagger the hard pulls so that they don’t just pile up), well then you’re at $3,000 in free money. Throw in a business card or two (and those balances don’t show on your personal credit profile, only the credit pulls), and you can make yourself $5,000 over 12-18 months doing absolutely nothing. The trick is spacing out the credit pulls right so you don’t torpedo your score. Long story short, if you know what you’re doing, banks should be paying you to have a credit card, not the other way around.
Dang, didn’t know H was into churning! I’m probably due for a new card but need to cancel my Delta card first.
Just curious, did you use any AI to come up with that?
No, I used extensive experience. I mean, the key underlying principle is that money’s fungible. It’s the simplest of simple dictums, but most people fail to appreciate the doors it unlocks once you embrace it and apply it.
A credit card with a $25k limit and 0% intro APR for 21 months with a sign-up statement credit bonus, cash back and cash back matching, is a de facto 21-month, no-interest loan where you’re paid to take the money (the bonus) and then paid regularly to use it (the cash back and the cash back matching).
As long as you use that loan to pay for purchases you would’ve made anyway (if you go out and buy dumb stuff, you’re obviously defeating the whole purpose) and then put the unspent money into a high-yield savings account with no fees, it’s just a positive carry trade, and the best kind: The financing cost isn’t just 0%, it’s actually negative in your favor via the opening reward bonus and cash back / cash back match, which is to say the lender’s paying you on top of the +3.5% (or whatever) you’re getting on the other leg (i.e. on the high-yield savings account). You’re basically borrowing in a negative-yielder and investing in a high-yielder, except it’s all in the same currency.
The other caveat (i.e., in addition to the necessity of being careful about how many hard pulls you’re putting on your credit report — because if you don’t learn how to game that, you’ll torch your score — and managing the balances so that they never exceed 50%, at most, of a given card’s limit — because going over that will tank your score too), is that this is only worth the time and effort if you’re sure you’re going to be approved for at least $10k and ideally much, much more on every card. You’re only going to be able to use half of the credit line on each card if you want to shield your score, so you really need three with $20k-$25k limits (e.g., so you can play with ~$30k-$40k) in order for this to add up to any meaningful amount of money.
Also (and I hope this goes without saying) you want to already have a house and a car before you go out and do anything like this. Because if you try to get a mortgage, or even a car lease, and they see all these cards on your credit report, they’re likely to deny you unless you can show so much income that everything else is irrelevant.
Oh, and this probably isn’t the best idea for married people with lots of children because if something happens to you, they’re going to have pay those cards off. So… consider your personal circumstances. And, again, NOT financial advice.
I listened to a podcast on credit card rates. I can’t recall the details – honestly it was rather boring – but the gist of it was that 1) delinquency rates are nowhere remotely near 20% (checked data: currently 3%, in GFC was only 7%), 2) much of the rate goes to fund all the points and perks as well as to marketing, 3) the savviest and highest-income cardholders are “transactors” who get the perks and don’t pay the rates, 4) the cardholders who pay most of the rates aren’t in a position to use most of the perks (struggling to keep up with your CC debt <> jetting off to Italy on points).
It seems like the world might be a fairer place if there were cards with much lower rates and no perks. There should be room for high-rate cards for subprime consumers or young consumers starting to build credit. Regardless, making that change abruptly will have major unintended consequences, cure worse than disease style.
There should be no perks. Many retailers are starting to add a percentage to bills to cover the card fee they are charged to cover rewards or points the cards offer users.
Penalty rates for missing payments can exceed 29%. I can understand being assessed a penalty, but 30% on the remaining balance! I would love to see bank execs dragged-out in front of an irate House investigative committee in order to explain their interest rates, fees, penalties, and profits. That would be fighting for Main Street, but I do not envision that happening anytime soon.
For example, if you are late by a day paying the entire balance it can cost a sizable amount for the next 2 months on many cards. For the banks cards are a ‘heads I win tails you lose’ affair.