Using Credit Cards at the Pump May Add to the High Price You Pay

As gas prices increase, a majority of consumers are using credit cards to pay for gas at the pump. While this is a good idea if the balance is paid off each month and reward points are earned, paying for gas with a credit card just adds to financial problems if you carry a balance.

A household that spends $300 on gas each month and pays with a credit card will pay at least $540 in interest each year if they carry a balance (15%APR).

Many analysts agree that credit card use has increased with the rise in gas prices. Credit card companies are benefiting from this increased usage. Last week in an earnings conference call, MasterCard's chief executive, Robert Selander, said that credit card payments at gas stations have increased significantly and they are one reason for the strong purchase growth during the second quarter.

Credit card companies also profit nicely from consumers using the credit card at the pump. They charge the gas station an interchange fee of 1.8% of the transaction. "Credit card companies receive 5.4 cents for every $3.00 gallon of gas you buy. As gas prices increase, their revenue increases also. Credit card issuers are one of the few winners with high gas prices," says Bill Hardekopf, CEO of LowCards.com.

"Gas and utility prices are high enough; don't charge these and add them to your credit card balance. The gas you purchased will be gone before you even get your credit card bill," says Hardekopf. "If you want the convenience of paying at the pump, but you are carrying a credit card balance, pay with a debit card instead."

American Express Announces Major Changes in Reward Programs

American Express cardholders will find notification of a significant change in the their rewards program in their August bill. According to the Wall Street Journal, American Express will announce later today they are cutting rewards and adding fees for some of their popular rewards programs.

For example, starting October 1, the Reward and Preferred Rewards Green, Gold and Platinum charge cards will no longer offer double reward points for everyday purchases at supermarkets, drug stores and gas stations. Membership Rewards options will no longer be offered to charge-card users; consumers would need to pay a fee to be upgraded to Membership Rewards.

"Generous rewards and rebates have become one of the major marketing tools that credit card issuers employ to expand their business. These rewards have been very attractive to consumers," says Bill Hardekopf, CEO of LowCards.com. "However, we have been saying for months that consumers should take advantage of these generous offers because issuers may be forced to add or increase fees, or possibly reduce the level of the rewards. We now see American Express cutting back on some of these rewards. We think other card issuers will also decrease levels of their reward
programs and possibly increase fees for reward cards."

Cardholders who have a card in the Membership Rewards Options will be switched into the basic Membership Rewards program and should expect an increase in their annual fee. The annual fee may rise from $65 to $95 for a Green card with the Options program.

The changes do not apply to the popular Blue reward card or the Delta Airlines co-branded cards.