Smart credit card use after Hurricane Irene

Smart credit card use after Hurricane Irene by Peter Andrew 

As people up and down the eastern seaboard continue to clear up in the wake of Hurricane Irene, many are likely to be looking to their credit cards to help pay for repairs and the replacement of wrecked household goods. Its depressing work, and especially distressing for those who are uninsured, either completely or just for flood damage. Business Insider recently quoted one source that suggested that up to 95 percent of all affected homeowners fall into this group.

Low interest credit cards versus rewards credit cards

Wow! Thats a colossal and genuinely shocking figure. And it suggests that huge numbers of victims may be forced to fall back on their plastic just to restore their lives to something approaching normalcy.

If youre one of them, youre likely to be pretty short on silver linings at the moment, and might be attracted by even the minor one offered by rewards credit cards. While youre spending all that money, you may think, you might just as well get some cash back, travel miles, points or whatever.

Good idea. But it may not be the smartest move for all your purchases. For many of those, you should probably be pulling your low interest credit cards from your wallet instead.

Credit card rates, rewards credit cards and credit card calculators

Thats because, on average, interest rates are higher for rewards credit cards than those for ordinary ones. Indeed, at the time of writing, IndexCreditCard.coms credit card rates monitor says that the average annual percentage rate (APR) for consumer non-rewards cards is 14.72 percent, while that for consumer rewards cards is 17.30 percent.

Youd need a spectacularly generous rewards card for it to make sense for you to charge items to it that you know you wont be able to pay down for a long time. Generally speaking, the rule is that its good to use rewards credit cards for purchases that you know you can clear quickly, and low interest credit cards for those that are going to take you longer.

You can use credit card calculators to see how long it should take youand how much it should cost youto pay down balances at your own cards different interest rates. Then you can work out what your personal strategy should be.

Balance transfer credit cards

If your credits good and youre having to load your cards a lot post-Irene, then you might want to consider applying for a balance transfer credit card. There are two reasons why this could be a good idea:

  1. A number of thesemostly from Citioffer zero percent APR on transferred balances for 21 months. Others make a similar offer for 15 months. That could provide you with just the breather that you need to get over the hurricane.
  2. Your credit score could suffer if the balance on any of your cards is higher than 30 percent of its credit limit. So even if you can manage paying down your credit card debt easily, you could be better off spreading the load across more plastic.

Credit card companies human!

One tiny positive revelation that emerged in the aftermath of Irene is that credit card companies are human. Thats not necessarily in the sense that the U.S. Supreme Court thinks, namely that corporations are people. No, its in the sense that theyre run by real-life, breathing and occasionally sentient human beings. Many of them announced that those affected by the hurricane could see their late payment and/or other penalty fees waived, though only for a strictly limited time. Awww. Aint they sweet?

Credit Card Processing Industry Gets Even More Competitive

The average consumer using a credit card may not realize just how competitive the credit card processing industry is for major players behind the scenes.  While most credit card users understand the basics of credit card processing; the business of transferring money from one hand to another remains somewhat of a mystery for the average consumer.  The inner workings of the credit card processing industry may seem unimportant if you are not a merchant or one of the parties involved in making credit card transactions possible, however anyone using a credit card should understand how the processing works as it affects card users as well.

Credit Card Networks

To better understand how credit card processing works, one must first identify the parties involved in the process.  On one end you have a credit card user who initiates the transaction.  By choosing to use your credit card, you authorize the movement of funds from the bank issuing your credit card to the merchant providing a product or service.  Connecting these two are card networks and credit card processors.  Card networks like Visa, MasterCard, Discover and American Express have long held control over credit card processing.  Now, as the industry faces new changes, control over credit card processing may become even more competitive.

New Players Change Industry

Already widely used in other nations, near field communication technology will change the way credit cards are processed.  In coming years, the way in which you use your credit card will change dramatically.  The introduction of smartphones and technology allowing credit card users to simply wave their cell phone in front of a reader opens the door to new players in the industry.  Traditional credit card processing will likely be affected as more companies, businesses and credit card processing parties join the industry.  Although many anticipate a great ease of use for credit card users and merchants, there is always the chance of negative results as well.  If changes in the industry create additional costs for merchants, the possibility is there to see costs passed onto consumers.  This may affect all consumers if the cost of goods and services rise as a result.  On a positive note, with more competition within the industry, there is also a chance that the cost of credit card processing may actually decrease.  If this is the case, merchants who currently avoid credit card transactions due to high processing fees may make the switch to accepting credit cards.

Adjusting To Change

To fully understand how changes in the industry will affect you, it is important to pay attention to how and when these changes will take place.  Card users are encouraged to read card agreements and any news relating to the use of smartphones or near field communication.  Security will remain a priority for all those involved with the processing of credit cards to ensure these changes do not open up the window for fraud and unauthorized use of consumer credit card accounts.  Meanwhile, credit card processors and other parties involved in the processing of payments must prepare increased competition in the industry and how it will impact business models.