Should You Be Using Your Credit Card More?

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If you're a Bank of America (NYSE: BAC  ) , SunTrust (NYSE: STI  ) , JPMorgan Chase (NYSE: JPM  ) , or Wells Fargo (NYSE: WFC  ) customer, changes may be coming to the way you bank. Not a customer of one of these giants? Odds are, you won't be off the hook forever.

How it happened
Two years ago, credit-card debt writeoffs reached an all-time high, and banks heavily encouraged debit-card usage through incentives like rewards programs. Now, a new law reduces how much large banks can charge merchants each time you use your debit card. Called a "swipe fee," the charge is for non-ATM transactions at retailers, and the law applies to all banks with more than $10 billion in assets. As a result, large banks are now aggressively promoting credit-card rewards programs, eliminating debit-card perks, and increasing fees on checking accounts to recoup lost income from swipe fees.

What it means for you
Beginning next year, Bank of America will charge customers $5 for each month they use their debit cards. JPMorgan Chase and Wells Fargo are rolling out charges as tests in certain regions. Other banks, like SunTrust, will be charging only on its free checking accounts. Chase and PNC Bank (NYSE: PNC  ) have rolled back or cancelled reward programs for debit-card users. Citigroup (NYSE: C  ) will be raising its minimum balance requirements and monthly maintenance fees by the end of the year.

So if you want to avoid surprises, here are some tips you need to follow.

1. Review your statements carefully
Understand what your bank will charge (if anything) and how and when it will appear on your account. Your bank may not increase debit-card fees, but it might add a fee to what was previously a free checking account or impose new minimum balance restrictions. Fees could be imposed either for-use (i.e., each time you use your card or account) or on a monthly or annual basis. Everything's up for grabs.

2. Use your points while you can
If your debit card has a rewards program, find out whether it's being cancelled, and what, if anything, you'll be able to do with your points. SunTrust cancelled its program for new customers earlier this year, and points accumulated by existing customers will expire in January. Points earned by JPMorgan Chase customers expired this past July. Citi recently notified customers that it is also ending its rewards program.

If you've paid a fee to participate in a rewards program, you may be eligible for a partial prorated refund. Check with your card company to learn more.

3. Compare rates
Not sure whether your bank's fees are competitive? Curious what your friend at another institution might be paying? A website such as Bankrate can help you see what fees banks are charging on checking accounts and credit cards.

4. Track all your accounts online
Use a service such as to track all your accounts in one place, and set up an alert specifically for bank fees to ensure you're not caught off-guard.

5. Upgrade to a premium, fee-free account
Several banks waive fees for customers retaining a higher balance. Consider combining multiple checking, savings, and/or money market accounts to ensure that your ccount meets any balance requirements.

6. Switch to a credit union or a small regional bank
Small banks and credit unions traditionally have lower interest rates and fees than commercial banks, and they aren't affected by the new law on swipe fees.

Is switching to credit-only for you?
Another option is to stay with your bank and reduce or eliminate your debit-card usage. Before you do that, here are some things to consider.

1. Even if you never use your debit card, swipe charges can show up in other ways, including as a monthly charge on your once-free checking account.

2. Be realistic about your habits. If you switched from credit to debit to reduce your debt, switching back might not be the way to go. You won't save much if you're carrying a balance on a high-interest credit card.

3. Don't be wooed by shiny points programs. Airline miles are nice, but if you're spending more on interest than you would on a ticket, it's not worth it.

4. Take a realistic look at how often you swipe and whether the rewards outweigh your costs.

5. Be sure to avoid the most common credit mistakes.

The Foolish bottom line
If you don't use your debit card very often, are with a bank that doesn't charge fees, or already manage your spending and rewards responsibility with your credit card, this change probably won't affect you much. But if you're the type who relies heavily on your debit card, now might be the time to make a change. Switch to an account or institution with no or fewer fees, pay cash more often, or charge responsibly.

Keep in mind that even if you switch back to a credit card, your credit card may soon be worthless. Check out this video to find out why. It's free for Fools.

Fool contributor Molly McCluskey doesn't own shares in any of the companies mentioned. The Motley Fool owns shares of JPMorgan Chase, Wells Fargo, PNC Financial, Bank of America, and Citigroup. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (5) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 23, 2011, at 7:21 AM, dmbenitez wrote:

    So, I give the bank my money as a deposit, they pay neglible interest and now they charge me for using my money......

    What about they cut all the overhead on useless marketing and become more productive instead of pushing me to use my credit card so they can eventually charge me interests?

  • Report this Comment On October 24, 2011, at 10:34 AM, XMFAlaska wrote:

    Hi Daniel. That's a great point, and I completely agree. Interest on borrowed money (i.e. credit) makes sense, but using your cash shouldn't carry penalties.

  • Report this Comment On October 24, 2011, at 12:55 PM, stevensinger wrote:

    I haven't used my debit card in years, as I use my credit card to track all my spending anyhow (and pay it off every month). Bank of America has been adding fees and eliminating benefits for a while now. Now there's a charge associated with scanning in your cancelled checks for printing on your statements; it's free for online viewing (so they scan it regardless), but not for your paper statement. They charge for ATM usage at other banks (as most do). They have eliminated online bill pay through credit card. If they start charging a fee for bill pay through my checking account, that will be my notice to move to another bank.

  • Report this Comment On October 24, 2011, at 1:17 PM, wolfman225 wrote:

    I don't really understand all the angst about the "new fees". They aren't new. They are simply an accomodation to the new rules instituted limiting swipe fees in an attempt to preserve revenue. The only difference is that now the costs are more directly borne by the account holder, not the merchant (the fact that merchants included the swipe fees, along with all other overhead figures, in their prices notwithstanding).

    The fees aren't "costs to get to our own money", they are convenience fees similar to the yearly fees found on many credit cards. If you don't want to pay the fees for debit cards there is a simple solution. Carry and pay cash.

    As for all the discontent with BofA, my only contact with them is through my VISA credit card. I've been with them for years. My current interest rate is a very low 7.9% (irrelevant, as I pay off the card in full every month), my credit limit is unchanged, and there have been no new added fees to the account. While I have read reports of others having their rates jacked (or credit limits cut) with no notice or explanation, I haven't met anyone personally who has experienced such without having first had a change in their financial circumstances that would warrant such a change (if you have lost your job or had your hours cut, resulting in lower income, your risk profile changes).

  • Report this Comment On November 01, 2011, at 4:03 PM, wjcoffman wrote:

    Use your credit card. If nothing else it establishes a revolving line of credit indicator on your credit report. Lack of credit, not bad credit or less than great credit, is costing a close family member 25% more in car insurance premiums. "There's a close statistical correlation between credit score and future claims activity". There was no response to my inquiry about the case of no credit history because of non-belief in the American way, er I mean debt.

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