Is the New Discover Motiva Card Encouraging Credit Card Debt?
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Last night when I was checking my Discover card statement, I browsed their site and found a new card they are offering: the Discover Motiva Card. I don’t know exactly when this card was first available, but since I didn’t notice it last time I checked my account early this month, I guess it’s fairly new.
Anyway, what caught my eyes actually is this appeared on the card’s homepage:
The only card that gives you a full month’s interest back for on-time payments.
With the new Discover Motiva Card, your good credit management earns you cash rewards. Just make 6 on-time payments in a row and we’ll pay you the next month’s interest back as a Pay-On-Time Bonus. That’s twice a year, every year when you pay on-time every month!
The “2 Months Interest Back as a Pay-On-Time Bonus”!
At first I wasn’t so sure about about this “2 Months Interest” thing because I never paid any credit card interests, where does the bonus come from? Then on the FAQ page of this new offering, Discover explains how I will rewarded with the bonus:
Q: What do you mean by “a full month of interest back”?
A: The interest used to calculate your Pay-On-Time Bonus is the combined Periodic Finance Charges on purchases, balance transfers, and cash advances shown on your billing statement in the Finance Charge Summary section. The amount of these Periodic Finance Charges will depend on your current balance, Annual Percentage Rates and payments and will not include any Transaction Fee Finance Charges.
So basically what Discover is doing is that I can get back one month of interests if I carry a credit card balance with an APR between 10.99% and 17.99%*!
While I appreciate it that Discover will be rewarding me for making on-time payment, is it also encouraging me to carry a debt just to get the reward?
* APR before April 30, 2008 is 3.99%
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Uhm, don’t all credit cards “encourage credit card debt”? You mean, perhaps, that this particular card encourages you to carry high-interest debt. Well, obviously, why do *all* credit cards offer a minimum payment plan each month, instead of requiring the full balance to be repaid? Because they are encouraging you to carry credit card debt. Nothing new here.
Jonathan: While it’s true that every credit card company would love to see us paying only the minimum every month so they can collect more fees, I didn’t any card before make this the key selling point. That I think is quite unique.
I had a baby Visa when I was in college that gave “3% cash back on your carried balance” and the interest rate was like 11%. It was the strangest thing to me, and I believe deliberately designed to confuse the young and gullible. Luckily I didn’t fall for it, but I’m sure there are many who did.
I’m not sure if this card exactly encourages more debt than necessary. However, if you absolutely have to carry some debt, it doesn’t hurt that paying on time helps you out. This is probably a great card for people who were irresponsible with their finances earlier and have finally come around to managing their money better - they could realize some decent benefits.
Stingy Student: It’s true that the card doesn’t explicitly say it encourages debt, but making the Pay-on-time bonus the key selling point does sound to me that I will be rewarded if I carry a balance. If I do have to carry a balance, it will be nice to get a little interests back. But I feel in many cases, a credit card isn’t really necessary. I will be much happier if the card instead rewards me for paying off the balance in full for six consecutive months. But in the case, the card company won’t make any money, so such a reward program won’t exist.