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The TD Payment Plus Credit Card Rewards Cardholders (Unless They Have Great Credit)

March 15, 2011
Credit Cards, Rewards Credit Cards
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The TD Payment Plus Visa offers credit card users and those with monthly revolving balances an incentive to get  on track to debt-free living faster. If you pay 5-9.99% of your current balance, TD will give you a credit worth 25% of that month’s interest charges. If you pay 10% or more of the current balance, the credit is worth 50% of the interest charges. These “rewards” as they are describing them, are then applied as a credit toward your next statement.

It sends a great message…

For people struggling to pay off their debt, or for those who suffer from absurdly high interest rates, this card acts as a de facto low interest credit card. If you are confident that you can pay off a tenth or more of your balance every month, you’ll see the 21.24% interest rate effectively halved, to just over 10%. This makes it ideal for people with average or limited credit, for whom such a high APR would be normal.  By making higher payments, they will be able to achieve the kinds of interest rates that they typically wouldn’t qualify for. The half-off rebate on interest nets such a user the same sorts of rates that those with good credit receive (the minimum rate on TD’s other cards is a little over 9%).

TD makes an effort to push its customers toward paying off their balances early: each statement details exactly how much you need to pay in order to get your rewards. And they also seem to understand the strange psychology of paying off debt. While everyone knows that making more than the minimum payment does save money, it’s difficult to motivate yourself with an abstract goal of paying less money that you haven’t even earned yet. This delayed gratification pales in comparison to the immediate rush of an upfront cash bonus.

While TD’s statement credits aren’t immediate gratification, being able to see the precise value of the money you’ll save, and receiving that money sooner rather than later, is a much more powerful incentive. For some, it could be just the nudge needed to pay off their debt faster.

… But it’s not ideal for everyone

This card is not geared towards those with good or excellent credit, despite the interest rate perk, and the fact that it carries no annual fee. These users could do much better with a local credit union, or even by applying for a standard low APR card. There are plenty out there that charge rates much lower than 10%, without requiring any additional payments.

And the 0% balance transfer promotion on the TD Payment Plus is also not a great deal for users who could qualify for other cards: it lasts a mere six months before the rate jumps up. Meanwhile, the Discover More offers 0% for 18 months right now, and so does the Citibank Platinum Select. Not to mention that the card offers nothing for rewards seekers, and won’t benefit travelers thanks to its 3% foreign exchange fee.

A new approach to banking?

It’s a smart move on the part of TD, since the higher-than-minimum payments send a signal that certain cardholders are less risky than their credit scores would imply, and therefore deserve better terms. It helps them manage risk, and increases customer loyalty.

In the credit heyday of before, let’s say, fall of ’07, banks tried to get consumers to spend as much as possible, and to pay as little of their balance as possible to rake in more interest payments. However, with interest rate hikes severely curtailed and credit risk still a concern, we could see more deals like TD’s: high initial interest rates and no rewards, but incentives for good behavior in the form of more reasonable rates and other bonuses.