NPSL cards—like World MasterCard credit cards, Visa Signature credit cards and charge cards from both American Express and Chase—have become some of the most popular credit cards for people with excellent credit because many such consumers mistakenly believe them to provide unrestricted spending capabilities. This myth of limitless spending most likely stems from a combination of the uniform industry policy not to release NPSL card limits and a simple misinterpretation of “No Preset Spending Limit.”

While many consumers effectively ignore the “P” in NPSL, and believe cards with this feature to have “No Spending Limits,” NPSL actually means that a card’s limit is not a static amount, laid out in an original offer. Rather, it is a fluid spending cap that changes from month to month and is based on numerous factors such as spending patterns, payment history and economic trends. The confusion over the meaning of NPSL is only exacerbated by the fact that issuers do not notify their customers about their limits. This not only entrenches the no-limit myth, it also decreases NPSL card limit usability. Since you don’t know how much you can spend at any time with an NPSL card, it’s difficult to effectively budget or plan significant purchases with any certainty.

Additionally, being unaware of your card’s credit limit makes it quite difficult to maintain a low balance-to-credit-limit ratio (i.e. credit utilization), which is extremely important to achieving the best credit score possible as it signals responsibility. According to an NPSL Card Study conducted by CardHub.com, the way issuers report to the major credit bureaus can lead to credit utilization problems as well. The study found that NPSL card issuers report arbitrary credit limits—if anything at all—to the credit bureaus rather than their cards’ true limits. These substitutes can make your credit utilization seem higher than it truly is and can damage your credit standing since credit scoring agencies prominently include utilization in their calculations.

Such effects are largely unpredictable, given that Card Hub’s study also discovered that issuer reporting practices exhibit no uniformity. Similarly, some of the biggest providers of NPSL cards— HSBC, Chase, and U.S. Bank—were found to lack transparency in their reporting practices.

In light of these findings and the risk associated with NPSL card use, consumers should avoid No Preset Spending Limit cards. They should instead open rewards credit cards that meet their lifestyle needs and garner true benefit rather than confusion and uncertainty.

This guest blog is from CardHub.com, a website that helps consumers find the best credit card, charge card, prepaid card, or gift card.

Having a credit card is something that many people simply take for granted as a necessity. However, a credit card can in reality cost you more than the convenience could ever be worth when you consider the interest charges, annual fees and transactions costs associated with owning and using a credit card. If you’re still not convinced, consider the benefits and drawbacks of owning a credit card, and consider the alternatives to this most expensive of all ‘must-haves’.

The Good Things

There is little doubt amongst credit card users that their cards are a useful item to keep in their wallets. A credit card can get you out of an expensive dinner or allow you snap up that online bargain. Are you benefiting from using your credit card:

• For an emergency purchase. A credit card can be a lifesaver if you receive an unexpectedly high bill, or your car breaks down and needs expensive repairs. You can even use your credit card in an emergency situation in a restaurant with friends if it comes time to split the bill and you’ve only budgeted for the one glass of wine, not a share of the three bottles for the table.
• Online or over the phone. You can use a credit card to make online purchases in internet auctions, online stores or with businesses which have real life shop fronts but offer discounts for online purchases. Similarly you can use your credit card over the phone if you are having a purchase shipped from out of town. Plus, you can also make phone and internet bill payments which save you time waiting in line at the post office to pay your bill in person – instead you can deal with an automated system over lunch and pay just about any bill with credit.
• For secure purchases and purchase insurance. Many credit card issuers will offer you an extended warranty or purchase insurance if you use your credit card to make the sale. This often allows you to recoup the cost of a purchase if your item is stolen, lost or damaged, and if you are making purchases online or overseas, you can often benefit from purchase insurance if the product is not what you expected or what was promised when it arrives.

The Bad Things

Accruing interest is not the only thing you have to worry about when you use a credit card. A credit card requires constant vigilance whenever you make a purchase to ensure you remain in control of your debt. Disadvantages of having a credit card include:

• High fees and exception fees. Credit cards can charge you an annual fee from as little as $50 a year to as much as $400 a year simply to allow you to have the card as that doesn’t include any usage fees. Exception fees are the ones which you can avoid if you stay within your credit limit and pay your monthly bills on time, but which skyrocket when you are the exception to the credit card rules.
• High interest rates. Most credit cards will offer interest free days and low interest introductory periods, however at the end of a promotional period, and if you don’t pay your balance back to zero you will forfeit those interest free days and all your purchases will be charged interest. As a result you will be paying for the same purchases again and again in interest charges which can be as much as 20% and even higher if you make a cash advance from your credit card.
• You must always remain in control and informed. As soon as your credit card purchases get out of control or you approach your credit limit you are at risk of high fees and high interest. If you have a credit card you continually have to remain aware of your balance and count your purchases to make sure you are not getting into debt you can’t afford.

So, Do You Really Need A Credit Card?

Remembering the drawbacks of using a credit card, do you need to use credit for:

• Emergencies? No. To cover your emergency expenses, a much more financially sound option is to have a dedicated emergency fund. It is easy to start an emergency fund by opening an online savings account and starting an automatic payment from your wages each week. This payment can be as little as $10 a week and this can quickly add up to a healthy emergency fund. Then, if the car breaks down or you get a large power bill after a hot summer you can access your own funds to pay for the emergency, rather than getting into credit card debt, which can create an emergency all of its own.
• Online or phone purchases? No. A debit card looks and acts like a credit card in that you can make purchases online or over the phone by entering your card numbers. However, a debit card access your own funds, from a linked transaction account so rather than accruing a balance which will be charged interest, you are spending your own money and when your account is empty, you have to stop spending.
• Secure purchases and purchase insurance? No. You can get these same benefits from a debit card too as debit cards are issued by both Visa and MasterCard, through your existing financial institution. Therefore, you have the same security features you would with a credit card to protect your card details when buying online or over the phone, plus you also often have purchase protection included as issued by Visa or MasterCard on their regular credit cards.

If you think there are no alternatives to using credit, think again. it is easier than you think to be financially responsible, spend your own money on day to day and emergency purchases, and break free from the hold of credit card debt.

The Ex-Girlfriend

My Chase Visa is my ex that I just can’t shake.  She keeps popping up every six months and I am pissed that I ever got involved with her.  With a $1500 credit limit, no rewards, she serves absolutely no purpose in my life. But she was my first, so I have a special place in my heart for her.  I can’t totally let her go or my credit report will suffer, but if it wasn’t for that, I would totally de-friend her on facebook and never talk to her again.

The Friend with Benefits

Ya know, my friend with bennies is always there for me (American Express Blue).  However, she’s not what I want at all.  At first, I really dug her.  Her credit limit kept increasing making her more attractive (think nose job, boob job, etc.), but my interest started to fade once I realized she wasn’t the one.   Her rewards (benefits) got pretty stale, and she was sort of high maintenance (not accepted everywhere).   Then again, she is my friend and was with me through good times and bad (and that high credit limit really helps my credit score).  I couldn’t just drop her entirely.   Just being a respectful guy, I have to call her 16 digit number once a month.

The Long Term Relationship

Damn she is sexy.  My new Schwab Invest First Visa is the total package.  She’s got a mind, a body and she dotes on me constantly.  Listen here fellas, I get 2% cash back on all purchases with this one, but she knows it would likely get lost in my checking account and probably spent, so she slides it into my brokerage account for me, automatically.   It’s that kind of girl that I can really get used to.  She knows what I need, and does it without asking.  Furthermore, she loves to travel with her zero international fees (and damn J. wait til we are all on the beach together and you see her in a bikini!).  This one gets her number called all of the time.  I see her daily and am smitten each time I get to lay my eyes upon her.   I do my best to keep her happy, and so far, she has been more than capable of doing the same for me.  If ever there were “the one” she is it.

This post is an entry into Credit Card Chaser’s Love/Hate Credit Card competition.  Hope you enjoyed reading this Joel.

No more will you read about options that are confusing.  If you want an answer about what is the best credit card for you, read on and I will tell you.

The Best Credit Card to Get Out of Debt

My friend Amy came to me the other day and said:

“I have X amount of debt. My credit card sucks, and I want to do a 0% balance transfer.  You’re my money friend, what do you recommend?”

I could have come back to Amy with a host of recommendations.  I could have sent her to a number of credit card finding sites (BankRate, etc.). However, this wasn’t going to get her motivated.  She didn’t want to do more research. She wanted the answer – which card to apply for.

Well Amy, my opinion on the BEST credit card out there to help you get out of debt is the CitiForward.

• The card doesn’t require excellent credit (only requires good credit)
• The card has 0% balance transfers for the first six months
• The card has a decent APR that will be reduced by 2% after 3 months of paying your bill on time (but who cares about APR after you get out of debt, right!)
• The card offers reward points at a decent clip
• The card also offers a few bonus reward point offers for just using the card at a modest frequency

Most cards that offer 0% balance transfers, fail to offer reward points.  That is why I recommended this card to Amy and that is why I am saying it is the best credit card out there at the moment.  This is a card that has features she should be happy with for years, not just the next six months as she pays off that remaining debt.

From experience, I know credit card shopping can be a pain in the ass.  It took me 3 months to settle on my own credit card (not the card I recommend above).

For those looking for a credit card that helps their situation but don’t know which to choose stop wasting time deliberating and get the card I recommend.  It will likely get you on track to your goals.  (If you want to read more about this card, check out a solid review of it here at The Digerati Life)

Jim is very pro-credit cards.

Baker is very anti-credit cards, and pro-cash.

I think Jim is awesome, and Baker is really really really dumb (even though he is a great friend to me and this site)!

I can’t wait to listen and possibly call into the show this evening.  If you want to listen, click here a bit prior to the show and you can chat with the hosts as well as call in and ask them a question.   I am really looking forward to making fun of Baker and his anti-credit card sentiments.  It should be a ton of fun.

(For those of you that don’t know, I currently write detailed recaps of each episode of the Personal Finance Hour for those that prefer to read the contents of the episode rather than listen.  It’s a great show that JD and Jim put on and I hope you all enjoy it)

Credit score myths:

• Having too many accounts can negatively affect your credit score.  This is not the case because of how your credit score is calculated (see below).
• Checking your own credit score will lower your score.  This is not true.  However, if you have a friend at the local bank check your score, it is possible this will be seen by the credit bureaus as you “shopping for credit”.  This can be a red flag to creditors and drop your credit score.

How a credit score is calculated:

The specific calculation methods of your credit score is hidden in a multi-variate model by FICO.  However, we do know some of the major components.

• 35% of your credit score is based on your payment history.  If you have not missed any payments, you can expect this section to be in your favor.
• The next 30% is based on your credit utilization.  To figure out your credit utilization, take the amount of revolving debt you have (credit cards) and divide it by the credit limits of your cards.  That percentage is your credit utilization.  The smaller the number, the better.

How you can hurt your credit score:

• Missing a payment! Missing a payment is one of the worst things you can do to demolish your credit score.  Liz Weston stated that your score can drop as much as 100 points based on one missed payment.  If this isn’t enough of a reason to automate your bill payments process, I don’t know what is.
• Having a low credit utilization percentage.  If your cards are near maxed (even if you pay them off in full) makes the credit bureaus worry.  They will ding your credit score as they think you are starting to over extend yourself and that this behavior may become a pattern.  In reality, you may have just charged a couple of airline tickets for a trip 6 months from now that you have the money saved for.

How you can help your credit score:

• Paying your bills on time.  This shows responsibility and that creditors can rely on you to pay them on time.
• Pay off your installment loans.  Paying off installment loans may not help your score much initially, but the more that are paid off, the larger of an affect they have on your credit score.  Also, it will feel great to not have to worry about your car payments, mortgage, or student loans anymore.
• Get a secured Credit Card.  Using a secured credit card will give you the opportunity to show your reliability to creditors.  Eventually this card can evolve into a normal unsecured credit card.  As Weston put it, if you aren’t using credit, the credit bureaus can’t track your usage of credit and can’t affect positively affect your score when you are acting responsibly.

A saddening tale that Liz discussed on the show was a couple that had driven themselves into such financial damage, that they emptied all of their home equity and retirment accounts in an attempt to avoid bankruptcy.  Unfortunately, when all was said and done, this couple had to declare bankruptcy anyway and lost all of their equity and their retirment accounts in the process.  These things can be protected in bankruptcy court.  It is not advisable to declare bankruptcy, but if you are in that deep of a whole, it may be best to consult financial advisors to see if nuking your credit report is the best way to try and repair the damage you have already done.

This personal finance hour episode was very informative as it discussed something that affects every one of us.  Not everyone deals with debt, not anyone needs tips on retirement accounts, or high yield savings accounts, but everyone does have a credit score, and that score can impact your life drastically be it high or low.  Learning more about your credit score is the first step you can take to ensuring your credit is helping you and not hurting you.  For more information, I suggest listening to the Personal Finance Hour episode for this week by clicking here.

Checking Accounts:

I have two checking accounts.  My first account is with a brick and mortar bank (M&T Bank), it’s a no frills, no minimum balance, no-fee account.  You should never pay a fee for a standard checking account.  If you are unsure if you are paying a fee, call your bank and find out.  I keep almost no balance in this account.  Its sole purpose is to be a convenient place for depositing cash and checks, and to transfer money to my “real” checking account.

My “real” checking account is an Electric Orange Checking Account through ING.  This account links seamlessly with my savings accounts (discussed below) and offers a .25% interest rate. Considering there aren’t many checking accounts that offer interest, this is a great deal.  Also, there are no ATM fees at over 30,000 ATMS throughout the country (only catch is you need to know which ATMS waive the fees, but if you don’t deal much with cash, this isn’t a big deal), electronic checks that can be sent via e-mail, or paper checks that can be mailed at your request.

Savings Accounts:

I love my ING Direct Savings Accounts.  I say accounts, because I technically I have more than one.  ING Direct Savings has a feature that has yet to be matched by other institutions as of yet.  This feature is the ability to open up “sub accounts”, giving each a specific name so you can keep track of separate savings goals.  For example, I have a primary savings account, and additional savings accounts for the following goals: a trip to Rome, a new car, a down payment for a house, and next year’s taxes.  Each of these accounts earns 1.5% in annual interest.  This rate is not the highest out there, but it is competitive compared to all the other online banks.  The “sub account” feature keeps me focused on specific goals, and for me, that’s worth a little less interest per year.

Credit Cards:

I have three credit cards, the first being my Chase Visa that I opened when I started college.  There is a $1,500 limit on the card.  This card doesn’t get used other than a $10 subscription each month, but I keep it open to increase my credit score as this is the card that I have the longest history with.

My next credit card is my American Express Blue.  This card has a $25,000, however, I have stopped using this card as I was only earning Amex reward points.  When I was looking to optimize my credit cards a few months back, I decided that the reward points weren’t as valuable to me as cash-back, hence this card also has only a $10 subscription being charged to it each month.  With such a large credit limit, this card helps my credit utilization score on my credit report, therefore will remain with me for some time.

Lastly, my new credit card, and now the only card I carry in my wallet, is my Schwab Invest First Visa Card.  This card has a $7,500 limit and offers me 2% cash-back on all purchases, with no international fees.  The 2% gets deposited into my Schwab Brokerage account (discussed below) and automatically invested into which ever fund I choose.  I am excited that I have this card, and it will be the only one I use on a regular basis moving forward.

Brokerage Account:

As mentioned above, my brokerage account is with Schwab.  Schwab’s low cost portfolios were perfect for a novice investor such as me.  I was able to open up the brokerage account with no minimum deposit because I opened up a Schwab Investor Checking Account at the same time, even though this account doesn’t get used.  I am currently only investing in one index fund, Schwab’s S&P 500 Index Fund that closely mirrors the S&P 500′s performance.

Roth IRA Account:

My Roth IRA is set up through Vanguard.  Vanguard is known for the lowest fees around, and since I will be putting $5,000 a year into this account for as long as I am eligible, the small fees are very attractive.  Furthermore, Vanguard has target date retirement index funds, allowing me to pick a fund (Target Retirement 2050) and let the fund diversify itself according to what is best for my current age in relation to my retirement.  For example, since I am only 24, the fund is stock heavy (90% ) because I can afford to be riskier with my investments.  However, when I am 50, it will look drastically different and may only be 65% stocks and 30% bonds and 5% cash reserves.  This rebalancing happens automatically, making this a stress free investment that will follow the market through its ups and downs (hopefully more of the former than the latter).

401(K) Account

My 401(K) is not officially active yet.  I become vested with my current employer on July 1^st, so look for a 401(K) article around that time.  I do know that I will be working with Fidelity come the 1^st, and I am excited to learn about the specific funds they offer (target retirement date funds – I hope!)

My accounts are very straightforward and simple.  However, they offer me all the flexibility I need to change my savings strategies and my investment strategies if the situation should arise.  My credit cards are focused on returning me the maximum possible rewards.  Another significant aspect of my accounts is the ease of the web-interface for each bank.   Each one is very easy to use and offers great customer service.  Prior to setting up an account, I do a trial run to see how long it takes to get a representative on the phone in the middle of the day.  I have never had to wait an exorbitantly long time for any of these institutions.  Because of their customer service, rates, and rewards, I felt it was important to share how my finances are set up.  Are there other institutions that I should look into or institutions that other readers are happy with?  If so, leave a comment or contact me here.

I had a mountain of debt, and it was slowly breaking my back as well as my psyche.  Things were not going well.   At the time, I had two credit cards.  My Visa had a limit of $1,500 and my Amex had a limit of $15,000.  Surprisingly throughout 2008, Amex kept raising my limit without asking me (I started 2008 with a $4,000 limit).  The Visa had a 27.74% APR (yikes!) and the Amex had an APR of 17.24% (a post on lowering your APR will be coming in the near future).

Carrying debt can be an overwhelming burden

Now, there are always two methods that people suggest for paying off credit card debt.  The first is to pay off the highest interest rate card first.  This makes economic sense as it will end up costing you less in interest fees in the long run.  The other method a lot of people recommend is Dave Ramsey’s debt snowball.  This involves paying off the card with the least debt on it first, allowing you to feel like you are making progress towards your goal of being debt free.   He describes it as building momentum as you pay off your debt.   I really like Ramsey’s method as it involved setting goals, reaching milestones and achieving successes.

What was I doing 8 months ago?  Neither of these methods.   I had studied advanced economics and I wasn’t following simple economic theory.   I always try to use common sense when approaching a problem, and I wasn’t following the common sense method of Dave Ramsey.  Instead, I was playing mind games with the worst possible opponent, myself.  I was desperately trying to get that large amount of debt on my Amex down to help my psyche.  In order to do this, I was letting more debt add up on my visa (with its higher interest rate) and barely making progress on my Amex bill because it was so large.  I was in debt and being dumb about it.

So how do I find myself where I am today with paid off credit cards?  It was by combining the two methods discussed above.  I paid off my Visa quickly, reaching a milestone and stopping the accumulation of higher interest charges.  With only one card left to focus on, I threw every dollar I could at my Amex bill, eventually going from being in debt to having accumulated cash when I received my tax refund for the year.

While it turned out that I was combining the two aforementioned strategies, it was my singular intention to use Dave Ramsey’s debt snowball method.  I feel having several small milestones (paying off one card at a time) on the way toward a larger goal (getting out of consumer debt) is the best way to feel progress as you are trying to climb a mountain of debt.

If you had a similar story, or took a different approach to getting out of debt that you want to share, please comment or email me at bscheur@gmail.com.

With so many choices out there, I hesitated to find the exact card I wanted.  After all, I was switching to a card for all of my purchases.  This card was to allow me the freedom to only carry one card in my wallet and not worry about my credit limit or if it will be accepted everywhere (sorry Amex).

The new card I picked was Schwab’s Invest First Visa card. This card automatically deposits 2% cash back on all of my purchases into my Schwab brokerage account each month.  I am all for automating my finances and for investing more, making this card perfect for me. The day I received the card, I activated it.  Suddenly, I felt something I had never felt before. There was an extra reason to spend my money. Luckily, my budget and discipline saved me, but that doesn’t mean I have won the war against this credit card, I have merely won the battle.  After a week or two, I am finding myself calculating the amount that will be invested on each purchase I have made ($10 on lunch? $0.20 into my brokerage account. Cha-Ching!).

This is going to be a constant struggle for me. Something as small as 2% cash back on my purchases is already enticing me to spend more. And if that small percent can entice me, while I am a man on a mission, it can entice anyone. I have a new respect for people that cut up their cards, because if you are not armed with the focus of spending wisely or with the framework of a budget, I can see people spiraling out of control and rationalizing part of their spending with these types of rewards.

I already love my card, but that doesn’t mean it won’t tempt me to perform actions I don’t want to.  If I would recommend a card to someone that may have a weakness for cash back rewards, I would suggest looking into a travel reward card. These cards offer about the same value as a cash back card, however the lack of a true monetary value to a specific set of miles may make you think less about your rewards when you go to spend.  However, this is contingent on the amount you travel.

Be careful out there in the war against credit card companies. Those companies come armed to fight for your money.

Good luck.