Evaluating Niche Perks and Installment Plans for Credit Card Value

Key Quotes

"We're seeing a lot of issuers add perks, increased rewards, and just provide a lot of consumer-friendly benefits. One of the things that I've really loved is that issuers are by and large adding the ability to see if you're approved for the card before you actually apply. But along with this, issuers are increasing fees, like we just talked about, and offering a lot of niche perks that might not be relevant to everyone."

Caitlin Mims highlights a dual trend in the credit card industry: the addition of consumer-friendly benefits alongside rising fees. Mims points out that while issuers are making it easier to check for pre-approval, they are also increasing annual fees and offering niche perks that may not suit every consumer's needs. This suggests a strategic shift by issuers to attract customers with upfront benefits while potentially increasing revenue through higher costs and specialized offers.

"We've noticed that a lot more people are using buy now, pay later options for just general purchases. And not even just on specific companies like Affirm and Afterpay, but we're also seeing more installment plans on credit cards. US Bank even launched a credit card recently where every purchase is automatically put into an installment plan. These programs can offer some flexibility when you need it, but they can also encourage overspending."

Caitlin Mims observes a growing trend of consumers utilizing "buy now, pay later" (BNPL) services and credit card installment plans for everyday purchases. Mims explains that while these options can provide financial flexibility, they also carry the risk of encouraging overspending. This indicates a potential shift in consumer behavior towards deferred payment models, which may lead to increased debt if not managed carefully.

"For me, there are really two factors to consider: value and effort. A lot of issuers have been adding what we call coupon book benefits to credit cards in exchange for these higher fees. So instead of general yearly credits on certain spending categories, we're seeing a lot of specific credits that are doled out monthly or quarterly. Some of these credits can be extremely valuable, but it also takes a lot of effort to use."

Caitlin Mims advises consumers to evaluate credit card benefits based on "value and effort" when considering whether to keep a card, especially after a fee increase. Mims notes that many issuers are now offering specific, time-bound credits that, while potentially valuable, require significant effort to utilize. This suggests that consumers should assess if the effort required to maximize these benefits aligns with the card's overall value proposition and their personal spending habits.

"Pick the card that's right for you, not the one that's trendy or making headlines. The Chase Sapphire Preferred is such a great card, and it's my personal favorite card that I have. But if you don't travel, it's not going to be that valuable for you, and a cashback winner might be better. Also, remember that if you're not paying off your balance in full each month, any reward you earn is going to be canceled out by interest."

Caitlin Mims emphasizes the importance of selecting a credit card based on individual needs rather than popularity, stating that a card's value is contingent on personal circumstances, such as travel habits. Mims also cautions that rewards can be negated by interest charges if balances are not paid in full monthly. This advice underscores the principle that a card's suitability is highly personal and that responsible repayment practices are crucial for realizing any financial benefits.

"We take both an objective and subjective approach to picking winners on credit cards. Throughout the year, my team reviews products and gives them a star rating, which considers things like fees, rewards rate, and perks. Our star ratings are a really helpful guide, but they capture a card's value today, not what it will be tomorrow or a year from now. The credit card landscape changes very rapidly, and our winners need to hold up throughout the year."

Caitlin Mims explains that NerdWallet's credit card selection process involves both objective metrics, like fees and rewards rates, and subjective considerations to determine award winners. Mims highlights that while star ratings provide a snapshot of a card's current value, the dynamic nature of the credit card market necessitates an evaluation of a card's long-term viability. This approach aims to identify cards that will remain valuable to consumers over time, not just at the moment of review.