The choice to use credit cards tends to be more personal than financial. While credit card use can be the gateway to a lifetime buried in debt, it doesn’t have to be. Most people are Type A credit card users. Type A credit card users see credit cards as a tool for buying anything for which cash might not be available. This leads to spending more than one can afford, increasing debt month after month. Type A credit card users often pay interest and sometimes pay late fees, increasing the cost of the use of the credit issuer’s money.

Type B credit card users use credit cards as a spending tool. They take advantage of the float provided by credit card issuers, a form of leverage, to delay their payment, allowing their own money to keep earning interest in a savings account. Type B users pay their bill on time and in full every month, collecting valuable rewards. The fees that Type A individuals pay to credit card issuers — as well as interchange fees issuers charge merchants — cover the cost of accepting Type B credit card users. Without the income generated by borrowers who pay interest and late fees, credit card issuers might need to reduce the rewards offered to those among Type B.

There’s more about Type A versus Type B credit users in this article about breaking the credit card habit.

Pete D’Arruda is a good example of how far Type B credit card users can go. While Pete admits to occasionally carrying a balance, when he does, it’s a fraction of the $300,000 total credit limit he has over 25 credit cards. I can’t imagine why anyone would need that much credit, but Pete seems to have created this financial situation just as a proof of concept. It may have paid off. He claims to have a FICO credit score of 810-815, squarely in the “excellent” range. His good score has likely saved him thousands of dollars thanks to lower interest rates and more favorable insurance terms, and with a mix of good credit cards, he is accumulating rewards points that he can use. Pete has also used his good credit history to negotiate annual fee waivers on some of his credit cards, including the elusive Visa Black Card.

Extreme perspectives are always interesting. There are many people who, as a reaction to overspending and climbing out of debt, have sworn off credit cards completely. Any credit card use is seen as bad or dangerous. For some spenders, that might be the case. I wouldn’t suggest anyone with a tendency towards compulsive or emotional spending to seek the latest credit card offers. For people who don’t have their finances under control, credit cards can be destructive. The choice of a financially secure individual to refuse all credit card usage, despite the potential for earning rewards and taking advantage of the float is an extreme action, just like Pete is an extreme example in the opposite direction.

Moderation may be more boring, but it’s the right answer for most people. Anyone who is financially prudent can take advantage of a few, appropriate credit card offers. Not everyone, even those who are completely in control of their finances, should attempt what Pete D’Arruda has done. A few mistakes could be costly.

Photo: SqueakyMarmot
Marketwatch

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It rarely makes sense to own a credit card that charges an annual fee. I own one credit card that charges an annual fee after the first year — the Continental Airlines OnePluss Card — and I might cancel before they charge my first annual fee. Even if I don’t, I fly Continental often enough so that the services provided, including free checked bags, make the fee worthwhile to me.

This card’s annual fee is modest, particularly when compared to cards that market their services to the super-rich and those who think they ought to be. These “luxury” credit cards offer access to airport lounges, dedicated concierges, and travel assistance. Some services are available to owners of free credit cards, but in some cases, the rewards go beyond what is typical. Some atypical rewards include free hotel stays at prestigious locales and invitations to special private events.

Most of the appeal of these cards is status. The mystique surrounding the “American Express Black Card” existed before the card itself existed, and American Express took advantage of that reputation when it created the Centurion card. If owning a credit card can be prestigious, this is the one to get, but it will cost you.

Citibank Chairman Card

For a $500 annual fee, you could become a member of the Citibank Chairman Card. This card is offered on American Express’s network. Like all luxury cards, the Citibank Chairman Card offers travel and concierge services. In addition to commercial travel benefits, like access to airport lounges, customers have the option of becoming members in programs that allow access to private jets.

Visa Black Card

The Visa Black Card, offered by Barclays Bank, is purported to be available to only 1% of the population of the United States. That’s still about three million people, so membership isn’t quite so exclusive. Nevertheless, the Visa Black Card offers benefits that are more inline with the American Express Platinum Card. If you use concierge and travel services, you may find the $495 annual fee worthwhile.

Platinum Card from American Express

Unlike the above two cards, the Platinum Card from American Express is a charge card, not a credit card. There’s no APR because you’ll owe your bill in full every month. The Platinum Card features a credit of up to $200 every year for airport fees like checked bags, flight changes, and meals on flights. If you’d prefer to fly privately, the card offers chartered flights, membership in a private jet company, and fractional ownership.

When traveling, you can use American Express Platinum Travel Services for exclusive reservations at villas and resorts. The card’s $450 annual fee is easily recovered if you’re a frequent world traveler.

American Express Centurion

The dollar version of the American Express Centurion Card costs $2,500 each year you own it, in addition to a $5,000 initiation fee when you are approved. It’s available by invitation only, so you won’t find any links here to apply for the card. If you charge more than $250,000 a year on an American Express Platinum Card, you may be eligible to enroll.

This card is a favorite among celebrities both real and fictional, who are often pictured in the media spending frivolously using the AmEx Centurion Card.

For most people, these cards will never fulfill the promise that the high fees provide. The cards excel at consolidating the types of benefits world travelers with significant amounts of disposal income might enjoy, like private travel, access to unique events, and vacations in isolated locations. Celebrities whose image is important to their future earning capacity could possibly argue the need for a Centurion Card, but the argument isn’t completely solid. Many celebrities would be better off by not spending frivolously.

Most of us are not celebrities and have to watch our spending closely. We many never take advantage of the services offered by these cards, such as private jets and exclusive hotel reservations.

Also see this comparison of luxury credit cards.

What do you think about these luxury credit cards?

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