Slate: A New 0% Credit Card from Chase

The government continues to report positive macroeconomic news. Yesterday, the Institute for Supply Management (ISM) released its Purchasing Manager's Index (PMI) for October 2009. The PMI came in at 55.7%, better than what Wall Street economists were expecting, and better than the September figure. For the PMI, any figure above 50% is a strong indication that the American manufacturing sector is expanding.

Though an economic recovery appears to be taking hold, too many Americans are still dealing with various forms of oppressive debt, a home mortgage balance that's higher than their home's value, and job insecurity. In fact, earlier today Johnson & Johnson, a component of the Dow Jones Industrial Average (DJIA) and number 29 on the Fortune 500, announced that the company will be cutting 7,000 jobs (that's between 6% - 7% of its workforce.) National unemployment, already at 9.8%, will almost certainly rise during the fourth quarter and into Q1 2010. A jobless economic recovery? Yes: we're in it right now.

The whole world is relieved that the subprime debt-inspired credit crisis, which precipitated the worst recession since the early 1980's, and which brought the American financial system to its knees, has almost run its course. The liquidity maelstrom of 2008 and 2009 prompted the banks which survived the subprime debacle to cutback on all kinds of loans, including credit cards.

But financial markets are on the mend, as evidenced by low LIBOR rates, a healthy TED spread and the return of generous 0% intro APR credit cards.

Credit cards that offer a 0% intro APR period of at least 12 months all but disappeared from the market last year. But they're back. JPMorgan Chase Bank, commonly known simply as Chase, recently revealed a new credit card called Slate. Here are the vitals on Slate:

• 0% introductory APR on purchases for 12 billing cycles
  
  
• 0% introductory APR on transferred balances for 12 billing cycles
  
  
• Balance transfer fee of 3% of each transaction, with a minimum of $5
  
  
• NB: The 0% intro APR is reserved for those who qualify for "Elite" or "Premium" pricing. Those who can only qualify for "Standard" pricing cannot take advantage of any interest-free introductory period with this particular card.
  
  
• For those who qualify for Elite pricing, the "goto" rate (also known as the ongoing rate) is 13.24% (the U.S. Prime Rate plus 9.99%); for Premium pricing it's 17.24% (Prime plus 13.99%.) For Standard pricing, the introductory and goto rate is 22.24% (Prime plus 18.99%.)
  

If you have a good FICO® credit score (above 700), you will probably qualify for either Elite or Premium pricing.

Slate is a very timely credit card: it has arrived in time for the fast approaching Christmas shopping season. With Slate, cardholders can do their holiday shopping and have plenty of time (12 billing cycles) to pay their credit card balance down to zero without having to worry about interest charges.

The goto rate with the Slate card, however, is relatively high when compared to consumer-friendly credit card offers that were available before the global credit crisis (likely a direct result of new rules included in the Credit Card Act of 2009.) For the consummate borrower who qualifies for Elite pricing, the rate charged on any balance remaining after the interest-free, introductory period ends is Prime (currently 3.25%) plus 9.99%, which translates to 13.24%.

But the U.S. Prime Rate is as low as it can possibly go. As the economy heats up, it will certainly rises, and it will likely do so at a relatively fast clip as the Fed works to contain future inflation. There is no way of knowing exactly how high the Prime Rate will be a year from now, but if we plug in the median U.S. Prime Rate -- 8.75% -- then we get a rate of 18.74%, which anyone would agree is not consumer-friendly. In fact, any rate above 15% would be too much of a financial burden for the typical credit card consumer.

That's why we recommend Slate for anyone who can pay their balance down to zero over 12 months or so, which shouldn't be that hard to do (no need to go crazy with the Christmas shopping!)

As always, your comments are welcome and appreciated.

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No Fee Balance Transfer

0% Intro APR credit cards that don't charge a fee on introductory balance transfers, and that are being offered from reputable American banks, are the best credit card deals in the American market today. This article offers some timely and useful advice for those who are looking for the best possible 0% credit card deal.

• Caveat #1: Make sure to note the interest rate that you'll pay once the interest-free period ends (this is sometimes referred to as the "go to" rate.) If you end up paying a significantly higher interest rate on your balance once the interest-free period ends, then you could end up with a much worse deal than you had before. So pay attention to all the numbers and, if you can, payoff your entire credit card balance once the interest-free period terminates.
  
  
• Caveat #2: Read the fine print carefully. Many zero percent balance transfer deals offered these days come with a catch: if you make any new purchases on the card to which you are transferring your balance(s) during the interest-free period, the annual percentage rate (APR) on those new purchases can be very high, as much as 29%! What's more, any payments you make toward the new card will very likely be applied to the lower interest, transferred balance(s) first, further exacerbating any lack of discipline on your part. So be careful. Balance transfer deals are a great way to save a lot of money in the long term, but if you have to make any new purchases, you are better off using cash, a debit card or a prepaid credit card.
  
  
• Caveat #3: Be careful when using convenience checks! With most credit cards, those convenience checks that you often find packaged with your credit card statement can get you into real trouble if you are not careful. With most cards, use of those convenience checks is tantamount to a cash advance, and credit card cash advances always have very high interest rates associated with them. Some credit cards will give you a favorable interest rate if you use their convenience checks to transfer balances from other credit cards. But read all the fine print carefully. Make sure that you understand exactly what you are getting into before using any convenience checks.
  
  OK, now for the good news: certain credit card companies will send you blank checks that you can use with their 0% APR balance transfer offer. These checks are really great because you can use them for anything you like. Many money-savvy consumers use these 0% balance transfer convenience checks as a way of getting an interest-free loan, but you can also use them to open a high-yield savings account or purchase a Certificate of Deposit*. Just remember: once the 0% intro APR period ends, interest charges will start to accrue on that "loan," so it's best to return any money that you intend to use with a zero APR convenience check back to the credit card account once the interest-free period terminates.
  
  Of course, all convenience checks have their limits, usually equal to the credit card account's credit limit.
  
  If you are not 100% sure as to whether or not the checks you'll receive with your new credit card are in fact 0% balance transfer convenience checks, then take 5 minutes and call the credit card company to find out (NB: I think it's always a good idea to write down the name of the representative you speak with just in case he/she makes a mistake.)
  
  
• Caveat #4: Don't overdo it! It doesn't matter if you are approved or rejected: too many applications for credit within a brief time span can result in a downgraded credit rating. Look for balance transfer deals that offer at least a 6 month intro APR on balances transferred (12 months or more is better) so that you don't end up transferring balances too often.
  
  
• Caveat #5: Before you submit an application for a credit card balance transfer, make sure that the credit card companies that you are dealing with are in fact different. If you try to transfer a balance from one credit card to another and both credit cards are owned by the same bank, then you application will almost certainly be rejected. If, for example, you try to transfer a balance from a Pulaski Bank Visa® card to a IberiaBank credit card, your balance transfer application will most likely be rejected because both credit cards are issued by Pulaski Bank. This might not seem like a big deal, but remember: Inquiries into your credit report can have a negative effect on your credit rating, especially those inquiries that result in any kind of rejection.

  You can usually consolidate two or more credit cards that have been issued by the same bank into one aggregate credit card, with the resulting aggregate credit card having a credit limit equal to the sum credit limits of the consolidated cards. You should call your credit card company for more information about consolidating credit cards.
  
  

• Caveat #6: Make sure that the credit card account to which you'll be transferring your balance(s) has a credit limit that won't get you into trouble with fees. For example, if you are planning to transfer a total of $5,000 via a zero percent intro APR offer, the credit limit of the receiving credit card account should have a credit limit that's above $5,000. Some zero APR offers charge a fee for transferring balances, and if you don't have enough breathing room, the credit card company may smack you with an over-the-limit fee once the balance transfer transaction fee is added to your account (of course, you first priority should be to find offers that don't charge a fee for transferring balances.)
  
  
• Caveat #7: Sometimes, a balance transfer offer is so good that even with a balance transfer fee, it's worth doing a balance transfer to the card, especially if you have high balances to transfer. However, watch out for these two pitfalls:
  
  
  • A decent balance transfer offer that includes a transaction fee will cap the fee at a reasonable level, usually between $75 and $99. If the deal has no cap, then you may end up regretting the decision to transfer your balance(s) when your statement arrives.
    
    
  • Read the fine print and find out if the balance transfer fee is subject to finance charges. Believe it or not, with certain deals out there, you could end up paying finances charges on a balance transfer fee. Bottom line: there are still a few consumer-friendly, 0% intro APR balance transfer offers available in the American market, so there's no reason to signup for a deal in which you'd be paying interest on a balance transfer transaction fee.
    
    
• Caveat #8: This may seem obvious, but make sure you pay all your bills on time -- not just your mortgage and credit card bills: you need to stay on top of your household utility bills as well (cable, phone, natural gas, etc.) Bottom line: the banks and credit card companies will offer the best 0% deals to customers with the best credit scores, plain and simple. Having a high FICO® credit score (shoot for a FICO score of 720 or higher) will also minimize the risk of having your credit application rejected.
  
  For your credit card accounts, use payment scheduling and automatic payments online, and keep those paper statement coming as a backup payment option just in case.

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Predatory Lenders on College Campuses Teach the Wrong Lessons About Credit

My husband likes to tell me about his college days, in the early 90s, before I knew him. One of his favorite memories is about his first experience with credit cards. He remembers being a college freshman, new to northern Michigan, stepping onto the campus for the first time. Expecting to be greeted by helpful upperclassmen and faculty who were there to escort him into the beginning of the rest of his life, he had a rude awakening - he was greeted by ‘the credit card guy’.

Still a fairly new marketing tactic at that time, campus recruiting by credit card companies was not looked down upon as the sleazy and unscrupulous predatory practice that it is. Older brothers, sisters, and cousins did not yet know to warn their younger relatives about ‘the credit card guy’ that would find them in the student center. The idea that you could get a free long distance calling card, T-shirt, or pizza just for filling out a short application was too good to pass up. Credit card companies know that starting college is an exhilarating experience; you feel empowered to make adult decisions, typically for the first time in your life. So, ‘the credit card guy’ makes sue that the very first ‘adult’ decision you make is to get a credit card you know nothing about because you want free pizza. Although the credit card companies claim that they are providing a valuable service to studnets, U.S. News and World Report agrees that this practice is questionable at best:



Just like many other unsuspecting freshmen, this campus recruiter convinced my husband that he needed a credit card, so he applied and was easily approved. Happy about his newfound freedom and means, he told his older brother about his credit card, expecting a good pat on the back. Instead, his brother was outraged. He had a steady job and living arrangements, paid his utilities on time, and was basically doing everything he could do to be financially responsible, but he couldn’t get a credit card to save his life. He was repeatedly denied because he didn’t have enough assets or income, according to the credit card companies. His little brother didn’t even have a job, and he just waltzed onto a college campus and got a card with a $500 limit? How unfair! Living on his own, he really needed credit to take care of business, yet his little brother, with absolutely no way to repay his debts, was able to get what he had been working hard for by simply checking “yes” in the box marked, “Are you a student?”

Needless to say, my husband was shocked and confused.

Now, in hindsight, he can see why his older brother was so angry. While his brother had intended to be responsible with credit he could not attain, my husband was absolutely irresponsible with credit that he did not have to work for at all. It helped to warp his idea of the purpose and proper use of credit, which took years to undo. However, because it caused him to plummet into debt so quickly, he can see why he and other college studnets were targeted. Low income plus easy credit equals a lifelong customer for credit card companies. With mass marketing of financial products to and predatory lending becoming a part of mainstream American culture over the past 20 years, young people and people with low incomes can almost expect to be able to get something for nothing. That’s why the mortgage industry crisis has crippled our economy. Sub-prime mortgage lending was ‘the credit card guy’ of the housing market.

Except no one got a free pizza.

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