Tuesday, November 16, 2010

The Discover Card

Should you use a Discover Card?  Probably Not.

I recently closed my Discover Card account.  This is the second Discover Card account I have had, and I closed both.  Why?  It is not a very good credit card, for a number of reasons:

1.  First and foremost, they keep sending you "checks" in the mail, that you can cash, and of course, have to pay off at regular interest rates.  At best, these are merely annoying junk mail.  At worst, they are insipid temptations to spend money - or be the victim of identity theft.  I asked them to stop sending them to me, more than six months ago.  But they keep sending them, and sending them, and ending them.
2.  The interest rate sucks.  Your typical Discover card has an APR of 13% or more, which is not very good in this era of single-digit rate cards.  If you should ever have a balance on this card, the interest charges will be fairly staggering, which means you will have a hard time paying off the balance.

3.  The "cash back rewards" program, like airline miles programs, pays you back a pittance of the money they make on each purchase (2-5% from retailers) and you are supposed to give them blubbering thanks for getting $100 back after charging $10,000 in purchases.  Sorry, but no sale.  Like airline miles cards, these "cash back" gimmicks distract the consumer from the underlying fact that a credit card is a debt instrument, with an interest rate.  While you may get "cash back" on purchases, the first month you don't pay off the entire balance, the whole savings from a year of "cash back" is shot.  Better off to find a simpler card with a lower interest rate that to try to finagle one of these deals.  In any financial transaction, the more complicated you can make the transaction, the easier it is to deceive the consumer.  That is why credit card companies offer these complicated deals - PERIOD.
4.  No one takes it.  You have better luck getting an AMEX card accepted than a Discover card, or so it seems.  What is the point of having a card that no one takes?
Taken alone, any one of these elements might not be enough to say "no thanks" to a Discover card.  But taken all together, it makes the card very unattractive.

Having credit cards is not a privilege.  They make money from your every purchase, and not an insubstantial amount.  It is a privilege for THEM to make 2-5% off every purchase you make, plus more money on interest on a balance.  So never feel "lucky" to be offered a credit card.

Being debt-free is far better than having a wallet filled with credit cards.  Use a debit card.  Pay cash.  Write a check.  When you start using credit cards, the temptation is too great to spend more than you have or to lose track of spending.  At the end of the month, when the bill comes due, you may be chagrined to see you don't have the money to pay off the balance - and then those high interest rates kick in, tacking hundreds of dollars in additional expenses to your lifestyle.

I am down to ONE credit card now, and even that one may go away and be replaced with a debit card.  It is a Capitol One card, with an interest rate of 7.55% and no gimmicks.