The second card is a Capital One that I got for a trip to Europe (they have no conversion fees). They gave me 1% cash back and I had to request it. I did after the first (and only) month I used the card. It is my “Foreign travel only” card. No fuss, no muss.

Of course, I pay off my balance in full, the cards have no annual fees, so they work well for me. But if you pay and annual fee or interest, it may not work as well.

Ah, but I did pay fees, didn’t I? Those “discount rates”–the transaction costs that merchants passed on to me when I shop from them. Thing is, they pass on those fees, as part of retail costs, whether I use my credit card or not! Seriously, if my grocery store offered me a 2% discount for paying in cash (and thereby saving them over 2% in transaction costs) I’d gladly do it, and forego the rewards of my WorldPoints card. It’s the merchants’ own fault that I’m using my credit card instead of saving THEM money!

Gas stations have recently started offering savings for customers who pay in cash rather than use their cards. Talk about d’uh and what took ‘em so long!

Every merchant that accepts credit cards pays what the card processors call a discount rate. This can vary depending on the merchants average transaction and the volume of their monthly transactions. In addition to that there is per transaction fees and batch closing fees. Not to mention the costs of possible chargeback fees from unscrupulous customers that dispute a charge rather than pay it and then there is outright fraud from stolen cards or card numbers.

To be honest I’m amazed that more merchants aren’t screaming about the costs of these rewards programs. I can only conclude that they are easily passing on all of these hidden costs right to their customers through higher prices on their products and services.

Our country is currently working through what the media tells us is the result of sub prime mortgages being given to people that couldn’t afford to pay for them. Yet I have watched the credit card industry do pretty much the same thing for years with nothing ever being said about it. Only recently has congress started looking into some of the shady practices of this industry. I realize this may sound extreme to some of you, but I personally think the entire credit card industry should be highly regulated.

I have been with Chase Visa forever, and have excellent credit, and they always waived my annual fee if I called to ask about it. Then when they started their travel rewards program, they charged a mandatory annual fee, which I went along with since they were now offering something of value. But then I noticed one year they started charging a second “annual fee” a few months after they charged the travel rewards fee. (It pays to read your statements carefully for hidden fees.) I called them and threatened to go elsewhere, since there are so many deals out there, and they backed off and only charge me the travel fee.

REI Visa – personal expenses, always buy a bunch of cool climbing equipment with the ~$400 or so rebate.

NOTE: ALWAYS PAY OFF YOUR BALANCE IN FULL EVERY MONTH!!!!!

We put pretty much everything on our Amex Blue Sky Rewards card, including groceries, gas, monthly cell phone bills, and the majority of expenses stemming from our ‘07 nuptials. After one year using the card, we had accumulated enough reward points to pay for a flight to Puerta Vallarta this summer. With gas prices out of control, we wouldn’t have even considered taking a trip this summer if we had to pay for both airplane tickets out of our already tightly stretched budget.

Additionally, I have had a Discover Cash Back Rewards card since before I met my husband. I use it less now, since we try to keep as many of our purchases as possible on the Amex, but I always use it first when they offer their 5% cash back bonus promotions. They usually have three months of the year dedicated to car expenses, and I can rack up a lot of bonus cash spending money on car maintenence every summer. Knowing that I am getting a hefty cash back reward helps make an un-fun and expensive, but nonetheless necessary, purchase a little easier to take.

My husband did have a CitiBank card that earned miles on American Airlines, but we just cancelled that one. The benefits on that card were more the traditional type, where you have limitations on which airline you can use and blackout dates prohibiting you from using your rewards when YOU want to (i.e. Christmas trips back home). Plus, we just got so fed up with American Airlines after a REALLY bad experience in DFW last year (on our honeymoon, no less). Their decision to charge passengers for checked bags was the last straw prompting us to cancel that card in a jiffy just last month.

We replaced that card with a Southwest Visa. We haven’t done enough spending with it yet to rack up any rewards, but we like that VISA is a universally recognized company, meaning we can count on it being accepted in places where our Amex and Discover cards are not (the one BIG drawback to our two favorites). As Oregonians with lots of friends and family in California, we fly Southwest several times a year, so we expect that this card will come in handy soon enough.