The Lure of the Black Card
Sometimes people view wealth as a matter of perception. And when people want to be perceived as wealthy they can make some poor financial decisions. I’d like to share one such example with you today.
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I remember one story fondly as a little girl driving to the store with my father. We were at a red light and right next to us was a shiny new red Porsche. It was a beautiful car. So I turned to my dad and said, “Wow dad that’s an amazing car, they must be rich”. My dad turned to me and said, “Not necessarily sweet heart”. I was confused and didn’t understand, but then he explained.
“To buy that Porsche this gentleman could have paid a down payment of a few thousand dollars and now makes a monthly payment of about $400 a month. There are lots of people who ‘can’ do that. Though ultimately people need decide how their money is best spent and best saved.”
It was my first realization that people overspend on things to make others perceive them as wealthy. Perhaps you’ve done this before with an expensive pair of jeans, a watch, or designer handbag. Well today I’d like to talk about one less obvious example.
Have you received an offer for a gold, platinum or black card yet? If not you should expect it soon.
Credit card companies are increasingly sending offers for their premium cards to new and existing customers. Issuers are attempting to get existing customers to upgrade their current cards and to lure new customers with the esteem of having a gold, platinum or black card.
Almost one of every three credit card offers mailed in the second quarter of 2011 was for some kind of premium card, up from one in four sent at the same time last year. In the past year, pitches for such premium cards have more than tripled, according to Synovate Mail Monitor.
Why Are They Doing This?
Platinum and Gold card members tend to be great customers. They pay off their balances regularly while still running up large tabs each month. Plus they make the customer feel special. So they want to show it, aka use it, every chance they get. This kind of behavior makes them the perfect kind of customer.
How Are They Luring Customers?
While there is some appeal and status that comes from having a gold, platinum or black card, credit card companies aren’t relying on that draw alone to attract a new round of elite members. They are offering major upgrades in benefits and sign up bonuses to new and existing customers.
Consumers can expect to get offers for a free flight, hundreds of dollars in cash back bonuses or thousands of reward points when they meet the spending requirement within the first three months. Right now American Express is sending out offers for their platinum card that will give qualified members 25,000 reward points, enough for one domestic round-trip airline ticket when you spend $1,000 during the first three months of card membership.
Credit card companies are also offering ongoing benefits too. When you become a platinum member, American Express will throw in twenty-four hour, seven days a week concierge service for assistance with reservations, travel, gifts and more.
This is a continuing trend among credit card companies. Throughout 2011 issuers have continually beefed up their offers in order to attract customers. Lower APR rates, longer introductory periods and more robust reward programs are just some of the benefits being offered to potential gold and platinum card members.
Previously top tier credit cards like gold and platinum cards were only offered to customers with credit scores in the upper 700’s. Now offers are going to people with credit scores in the 600’s. In 2005, the majority of offers went to riskier consumers; now it’s only 18 percent of the offers. And 85 percent of the new offers are for reward cards for people with low credit risks. It’s all part of more aggressive tactics being taken by credit card companies to attract more customers.
Should We Be Swayed By These Offers?
Premium credit cards often come with premium costs. To get the concierge service, the cash back rewards, the free flights members usually have to pay an annual membership fee that ranges anywhere from $150-495 a year. The services and bonuses offered with the American Express Platinum card I mentioned earlier comes with just such a price tag, an annual membership fee of $450. And the Visa Black card charges $495 a year in membership fees.
Now if you plan to use those extra bonuses and rewards the membership could be worth it. However, most card holders will never use the concierge service or the access to VIP lounges at airports across the country. For those types of consumers a card with no annual fee and less frivolous benefits will work better for them. Visit creditcards.com to browse through all of the current offers. You can shop for new cards by rewards program, cash back offers, travel and airline mile programs or credit score.
For some people reward programs and sign up bonuses are the only things they consider when deciding to open a new credit card (myself included). I want to get cash back and thousands of bonus miles or points when I become a member. For these type of people credit card churning may be a viable option. I went into detail about this type of industry play back in May.
Credit card churning is when consumers sign up for cards with great sign up bonuses like free flights or cash back, complete the required minimum spending in the first few months of membership then close the card before having to pay the annual fee. These consumers continually open and quickly close credit cards taking the rewards over and over again. It’s highly rewarding for the consumer but not for the credit card companies.
In closing, I strongly encourage having credit cards with rewards programs that pay you back. Though don’t fall for the sucker’s game of wealth and perception. Paying hundreds of dollars a year for a card painted gold, platinum, or black with benefits you’ll never use is just silly. Save and invest that money so you can work on ‘REALLY’ becoming rich.
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Keeping Money in Your Pocket,