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Make Your Credit Cards Work for You

By Dan Caplinger - Updated Apr 6, 2017 at 1:24PM

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Play by your own rules.

Credit card companies want you to spend by their rules, and they're pulling out all the stops to get you to play along. But in the aftermath of the financial crisis, those rules are changing. With some cards, even getting in the door has become pricey.

Rolling out the red carpet
In an effort to snare new customers, card issuers have gotten creative with their offerings. Instead of simply bribing potential applicants with cashback rewards or frequent flier miles, companies are moving toward a pay-to-play model, with heightened service they hope will justify the high costs.

Once a pioneer in the trillion-dollar exchange-traded fund industry, Barclays (NYSE: BCS) isn't well known for its credit card business. Yet its Barclays Bank affiliate is targeting its Black Card directly at high net-worth individuals, aiming high with a whopping $495 annual fee. In addition to typical benefits like rental car insurance, the card will give holders what it calls "luxury gifts," universal access to airport lounges, and 24-hour access to concierge assistance for "personal needs" of all sorts.

Obviously, Barclays isn't the first to offer cards with significant annual fees. American Express (NYSE: AXP) has emphasized the panache of holding its cards, which carry fees ranging from $95 to $450. Those fees add up, representing more than $2 billion in annual revenue for the company.

So it makes sense that other issuers are rushing to join the party. According to The Wall Street Journal, Capital One (NYSE: COF) is pitching a card that offers double reward miles in exchange for a $59 annual fee, with the first year free. At $85 a year, JPMorgan Chase's(NYSE: JPM) Sapphire card simplifies point use by offering a flexible cross-program platform. Both companies are among those most exposed to delinquencies among their cardholders, although JPMorgan Chase finally started to see some relief in its delinquency rates in its first-quarter report. Nevertheless, it's clear that issuers are trying to move beyond the cyclical ebb and flow of interest income to try to lock in more stable sources of revenue.

Should you dance?
Unfortunately, it appears that this trend of declining free rewards will continue for some time. Recently, Charles Schwab (Nasdaq: SCHW) announced that it was discontinuing its fee-free 2% rewards card. A Schwab spokesperson told The New York Times that the card "was designed and modeled based on a very different economic environment than what we're experiencing now after the financial crisis."

Certainly, that's true from the card issuers' perspective. The recently enacted credit card reform laws have placed severe limitations on the ability of credit card companies to maximize income from those who carry balances on their cards every month. In response, card companies are looking for ways to get more revenue from those it considers "freeloaders": customers who pay off their balances every month.

Golden eggs? Who needs 'em?
What happens next depends on you and millions of other cardholders. For some people, the rewards that new premium cards will give them may outweigh what they have to pay -- and if you're one of them, then by all means, take full advantage. Yet keep in mind that if companies expected to lose money on these deals, they wouldn't do them. Paying hundreds of dollars up front is a big hurdle to overcome in comparison to the free cards that are still available, at least for now. Make sure it's worth the cost.

For many of us, paying for cards won't make sense. For now, there's no shortage of good free alternatives -- I still get offers every week throwing free miles at me. If those ever disappear, though, I won't hesitate to stop using credit cards. As long as card-issuing banks -- along with the merchant networks Visa (NYSE: V) and MasterCard (NYSE: MA), who take their share via interchange fees -- are skimming billions off the top of huge numbers of transactions every day, I want my cut. If you try to cut me out, I'll walk. And I'm confident I'm not alone.

Are you with me or against me? What do you think about new credit card fees? Tell me all about it in the comments section below.

Tune in every Monday and Wednesday for Dan's columns on retirement, investing, and personal finance.

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Stocks Mentioned

American Express Company Stock Quote
American Express Company
$153.24 (-0.49%) $0.76
JPMorgan Chase & Co. Stock Quote
JPMorgan Chase & Co.
$117.34 (-0.82%) $0.97
Visa Inc. Stock Quote
Visa Inc.
$199.03 (0.84%) $1.66
Mastercard Incorporated Stock Quote
Mastercard Incorporated
$336.18 (1.19%) $3.96
Capital One Financial Corporation Stock Quote
Capital One Financial Corporation
$113.70 (0.33%) $0.37
Barclays PLC Stock Quote
Barclays PLC
$7.79 (-0.64%) $0.05

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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