The following is a credit card review from guest writer Mike Dolen, the guy behind CreditCardForum, which is a discussion board about using credit responsibly.
First it was Alec Baldwin, peddling the Capital One Venture with “double miles.” Now there’s Jimmy Fallon, who’s hawking the Capital One Cash card with a 50% bonus.
The high rewards may sound enticing, but there are downsides to consider…
1. The annual fee
The Venture card will set you back $59 per year. Since the rewards earned are worth 2%, that would mean the first $2,950 you spend per year will be a wash, because that’s how much you will have to spend to earn $59 worth of rewards. Meanwhile the Capital One Cash card doesn’t charge an annual fee, but the total payout is lower, coming in at 1.5%.
2. Late fees and finance charges
Reward cards are definitely not for everyone. Think about it – making just one late payment could mean a fee of up to $35. That may very well offset the value for months of accumulated rewards.
Almost all reward cards – not just Capital One – come with hefty interest rates. So if you carry a balance, even if it’s for a brief amount of time, it also will be likely to make your rewards a wash.
3. Delay in rewards
The 1.5% on the Capital One Cash credit card is divvied up into two parts. You get 1% cash back on your spending each month. The other 0.5% isn’t given until the anniversary date of when you opened the account. So when you think about it, you will be waiting up to 12 months until you see the full 1.5% cash rebate. On the other hand, there’s no delay with the $59 Venture Card.
4. Budgeting
The nice thing about paying with checks or cash is that it’s fairly easy to keep track of how much money you have left. With credit cards, unless you are regularly logging into your account to check your charges, it’s easy to get carried away and be left with a surprisingly large bill at the end of the month. So if you’re going to go the route of credit, ask yourself “Will this interfere with my budgeting?”
5. The psychology of plastic
As someone who runs a forum about credit cards, obviously I’m a fan… but not when the convenience of plastic leads to increased spending!
Art Markman, Ph.D., a cognitive scientist at the University of Texas, wrote a piece last year for Psychology Today titled “Spending and Credit Cards.” His conclusion was that many people really do spend more with plastic than cash. But that’s not a new concept – many psychologists and those from the business world have drawn similar conclusions.
If you’re one of the people who will spend more with a credit card, then you really shouldn’t care about 1.5% or 2% cash back. Because the increased spending will surely dwarf your rewards.
Verdict?
Capital One has some of the most lucrative reward programs in the credit card world. You won’t find many offers that beat the 2% on the Venture and 1.5% on the Cash card.
But before you take your marching orders from Jimmy Fallon or Alec Baldwin, you need to take a good hard look at the downsides mentioned above. This is especially true for college students. In my Capital One Journey card review (a credit card for students) I talk about how even though it gives an above-average 1.25% rebate, the higher interest rates could make it a dangerous proposition.
Image Credit: Rotten Tomatoes
Disclaimer: The views and opinions expressed in this article are those of Michael Dolen and CreditCardForum.com. The articles are intended for informational and entertainment purposes only. They do not necessarily represent an opinion or endorsement from Check Advantage or its parent company.
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