While consumers don’t have to worry about credit card rate increases, small businesses still need to closely monitor their credit card statements.  Why?  Because small business credit cards aren’t covered by the CARD Act, credit card companies can increase interest rates at any time, for any reason.

I recently found a rate increase notice on page 9 of a 13 page credit card statement from American Express.  Presently, the rate on this particular business card is a very reasonable 12.24%.  On August 1st, the rate increases by nearly 30% to 16.24%.

If I want to opt out of the interest rate increase, I have until August 20th to call in and close my account.  This would allow me to repay my current balance at the lower interest rate.  However, if I want to keep my card open, I must accept a higher interest rate. Continue Reading »

In one of the oddest moves in the ongoing saga of Credit Card Issuers Gone Wild,  American Express  has unveiled a plan to pay cardholders a $300 gift card to close their credit card accounts.   For consumers fortunate (or unfortunate) enough to get this offer, there are a number of rather important factors to consider before accepting or declining this offer.  However, there are also a few situations where consumers could actually gain by getting the Ax from Amex.  Here’s how:

1.)  Do a 0% Balance Transfer:  If you are currently paying an interest rate of 10% or more, you could save a few hundred dollars a year with a balance transfer credit card.  For example, if you carry a $5000 balance on a credit card with a 13% interest rate, you would could save close to $700 on interest over the course of a year with a 0% APR balance transfer, plus a $300 giftcard from American Express.  This would essentially put another $1000 in your pocket.

However, this option does have some risks.  For example, closing your American Express card could hurt your credit score, especially if this is one of the credit cards you have had the longest.  In some cases, the effect on your credit score might make the difference between getting approved for a 0% balance transfer credit card or not getting approved.

Consequently, if you plan to capitalize on the Amex Ax, apply for a 0% balance transfer credit card before closing your account.  This may also help limit the damage of closing your Amex account, as you will replace some of the credit line you would have lost.

2.)  Use Excess Savings to Pay off Your Debt:  Okay, not too many of us have extra savings lying around, but if you do, you’ll earn a better return on your cash than you might in a savings account.  If, for example, you have a $5,000 balance and opt to close your account, you’ll earn a 6% return on that money, plus save whatever interest expense you might have incurred.

However, as with the balance transfer strategy, the effect closing your credit card account will have on your credit score could be substantial.  Thus, even if you choose to pay off your credit card, you may be able to limit the damage to your credit score by opening a new credit card account.  Plus, this will also provide you with a credit line for emergencies.

3.)  Be Thankful American Express is Kind:  During the past six months, Chase, Bank of America, and many other credit card issuers have been closing consumer accounts and raising interest rates on consumers who choose to keep their accounts open.  Most credit card issuers have been approaching consumers with, “offers they can’t refuse.”  For example, some banks gave consumers this ultimatum:  close your account or pay a 30% higher interest rate.  There were no gift card offers there.

4.)  Prepare for Future Credit Card Turmoil:  Even if you didn’t personally get the Ax from Amex, the $300 gift card bribe highlights the growing struggles of the credit card issuers.  While things will get better, there is little evidence that this will happen anytime soon.  Thus, if you are carrying large balances on high interest credit cards or increasing your monthly debt, be prepared to get an offer from your credit card company.  And don’t be surprised if they are not offering you a $300 gift card.

Over the course of 2008 and early 2009, American Express has significantly altered its balance transfer rates.  Until September of 2008, American Express offered a number of credit cards that offered fixed APR balance transfers for life.  The interest rate?  For some cards, as low as 4.99%.  This was one the best options available to consumers looking to pay down credit card debt without utilizing a second, third or seventh mortgage.

When the financial markets went haywire last fall, American Express stopped offering fixed APR for life balance transfers and began offering 2.99% balance transfers for 12 months.  This move was a sharp departure from its rivals, most of whom continued (and hopefully with continue to) offer 0% APR balance transfers for 1 year.

For information on current American Express balance transfer offers, please see the appropriate section of this website.

American Express targets their credit cards to big spending consumers.  However, over the past few years, American Express has offered a great deal on fixed APR for life balance transfers with many of their credit cards.  However, as we reported last month, American Express is no longer offering fixed APR for life balance transfers.  In fact, most American Express cards are not offering low rates on balance transfers at all anymore.

While some cards are offering no fee balance transfers, these cards still carry interest rates in the high teens and, since there are a lot of credit card companies offering 0% APR balance transfers, these are not the best deals.  With 0% balance transfers available, there’s little reason to save a few dollars and then pay hundreds more interest. 

For more information on American Express balance transfers, please see their respective section in the credit card comparison section of this website.  For more information on 0% APR balance transfers, please refer to that section.

In what is proving to be one of the nastiest years for consumer credit, the removal of fixed APR balance transfer offers from the market is just latest blow.  Earlier this month, Advanta, which had offered a 2.99% APR on balance transfers for life, pulled the plug on this offer two weeks ago.  On September 19th, American Express is following suit, reducing the term of its fixed APR balance transfers from LIFE to 1 year.  Last time I checked, that’s a pretty significant change.

During the past four years, American Express offered a fixed APR of 4.99% for life with its Blue and Blue Cash cards, as well as no fee 5.99% fixed APR balance transfers with its Clear card.  Now, consumers will not only be asked to pony up a 3% fee to transfer a balance, they’ll have to pay a hefty APR in the low teens a year later.

The message is pretty clear.  Amex doesn’t want your balance transfers.  Every other major issuer still offers 0% balance transfers, though many have raised fees.  The one bright spot remains Discover, which offers low fees and 0% APRs for a year on both purchases and balance transfers.

One thing American Express does what you do to do is spend, spend, spend.  They are still offering 0% interest rates on purchases for up to 1 year with many of their products.  You can review American Express credit cards in their section of SmartBalanceTransfers.com.  You can also review 0% APR balance transfer offers in that section of SmartBalanceTransfers.com

As always, we’ll keep you posted on any new developments.

Sources:  American Express, Discover