I've Made a Important Discovery! I Don't Like Discover Card
Written: May 31 '02
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Pros: Cash back bonus is ok
Cons: High late fees; High over the limit fees
The Bottom Line: Discover is a so- so card, with fees that can really add up if you are not disciplined
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| Bryan_Carey's Full Review: Discover Card |
Credit cards are a necessary evil in many respects. They are needed to check into hotels, to rent cars, and for several other financial transactions. Without a credit card, you would be handicapped in the world of commerce.
But credit cards can also become a real pain, if they are not managed correctly. Finance charges, late fees, and other charges can stack up quickly, making one wish that he/she had not signed on the bottom line. One credit card issuer that really knows how to sock it to the customer is Discover, a credit card that has more than one weapon in its lighten- your- wallet arsenal.
Basics of this Credit Card:
Discover card is similar to other major credit cards, like Master Card, Visa, and American Express. It’s accepted by most merchants, from restaurants to clothing stores. It isn’t quite as widely used and accepted as Visa and Master Card, but it’s more widely accepted than American Express.
Discover does not charge any annual fee, and its interest rate is usually right in line with other credit cards. The going rate changes from time to time, but right now it’s around 13.99% on purchases and 19.99% on cash advances, with a minimum finance charge of 50 cents. These numbers are not the best in the market, but they aren’t too bad, either. Keep in mind, though, that the interest rate on purchases is variable. It’s tied to the prime rate and it equals prime plus 8.24%. If interest rates suddenly rise by a substantial amount, you can expect your rate to rise accordingly. The only exception would be your introductory rate (if applicable). Your introductory rate will remain intact for the length of the agreement.
Miscellaneous Fees:
Discover has many ways to ensure that it generates a bottom- line profit each year. Let’s start with late fees. If your payment is received late, you will be charged $15 on balances up to $100; $25 on balances from $100 to $1000; and $35 on balances from $1000 and up. In addition to these fees, there’s another penalty that you face, for making a late payment: the end of your introductory rate. If you had a special, low interest rate for the first 6 months or 12 months of your Discover membership, this rate terminates when your payment is received late, and the finance charge increases to the standard interest rate.
Another fee that Discover charges is for cash advances. They will charge you 3% of the amount you borrow, with a minimum of $5. This is pretty standard with credit cards, so it isn’t too bad.
If your card goes over its limit, you will be charged a flat fee of $29. This is not a one- time penalty. It’s a fee that will be charged to you continuously, each month, as long as your balance remains above its limit.
Insurance Coverage:
Discover does provide insurance coverage, provided that you used your card to make certain purchases. If you use Discover to buy airline tickets, you will receive $500,000 in air travel accident insurance, at no additional cost to the cardholder. If you use your card to rent a car, you will receive $25,000 in collision coverage.
Cash Back Bonus:
This is the main selling point of Discover Card. You receive an amount of cash each year, as a bonus, based on the total amount of purchases that you made with your card. The cash back award is equal to a certain percentage of the total purchases made during the year, based on the following schedule:
.25% on the first $1,500 in purchases for the year
.50% on purchases between $1,500 and $3,000
1.0% on purchases over $3,000
Discover runs periodic specials where these cash back awards are doubled. They also have partnerships with some merchants where the cash back award is always increased. Some of these Discover partners include Budget Rent a Car, Hyatt Hotels, The Sharper Image, Omaha Steaks, Royal Caribbean Cruises, etc.
Final Thoughts:
I have some experience with the Discover Card, but my experience is in a less than direct way. I currently have a Discover Card in my wallet, and I have used the card on occasion. But right now, the entire balance owed on my card is for purchases that my sister made. She needed some help with finances, so I naively agreed to give her my credit card.
Because of my sister’s undisciplined use of the card, it was over its limit faster than I could say “compounding”. This allowed me to experience, first hand, how Discover Card accounts work when you exceed your limit and don’t make a concerted effort to get the balance reduced back below its limit. The interest rate per month surged forward to 19.99%. There is a monthly over the limit charge of $29. Finance charges, combined with over the limit fees, add up to about $75 per month. However, the minimum payment is only $50 per month. So, as you can see, if you find yourself in this predicament and you opt for making only the minimum payment, your balance will never decrease. It will keep rising, and you will be financially raped with all the finance charges, over the limit fees, and possibly late fees. To add to my personal frustration, my sister has made no effort to send in payments that are large enough to cover the excessive fees and finance charges. So, the debt is higher today than it was when her spending spree began. I know this isn’t completely the fault of the people at Discover, but it still aggravating that the minimum payment that Discover charges isn’t even high enough to reduce the balance.
The cash back bonus is not as great as Discover makes it out to be. Let’s assume that I make $10,000 in charges in one year. Using the above schedule, my total cash back award would equal $81.25. This is like getting a .8125% (slightly less than 1%) discount on your purchases for the year. This bonus could easily be wiped out if you incur any late fees, over the limit fees, or excessive finance charges during the year. Personally, I prefer the deals that are offered by credit cards that are offered by airlines that give frequent flyer miles. With 10,000 in charges, I would get 10,000 frequent flyer miles (or more, depending on any special deals that you take advantage of during the year), plus any bonus amount of miles that you receive from signing up. While it’s true that these cards usually carry an annual fee of $50, this is still more valuable to me than the cash back award. The 10,000 frequent flyer miles, plus a bonus of, say, 3,000 miles for signing up, would equal just slightly more than half the miles needed to get a free domestic flight. Monetarily, this translates into about $170. Subtract the annual fee, and you get a benefit amount of $120 compared to the $81.25 that you would get with Discover.
The excessive fees are the worst factor of Discover Card. But even in the absence of these charges, the interest rate is still higher than you can get with many other cards. Cash back awards are ok, but not enough to make me a loyal user of Discover.
Overall, Discover is a so- so credit card. It’s a necessary evil to have at least one credit card account, but I think I will choose the lesser of two evils and stick with my travel reward card. It provides slightly more benefits for me personally, in spite of the annual fee.
And by the way…..if a relative asks you to loan them money on a credit card, take my advice and just say NO! You will never get paid back, and you will wind up with an enemy.
Recommended:
No
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