The other day I stumbled across an advertisement for Bank of America’s new Brighter Planet credit card. The idea behind the card is that every dollar you spend earns points which are then converted to purchase carbon offsets. Bank of America is not the first credit card company to try to convince us that we can save the world simply by shopping. There are tons of cards today that benefit charities and causes of one sort or another. Most take a percentage of your purchases and convert that amount to points or cash which is then passed on to the charity or cause.
While there’s nothing inherently wrong with these cards, the idea that you can change the word by using a credit card is sketchy at best and can be dangerous to your wallet. Credit card companies like to do things to make us feel better about our spending and our debt. What could be better than helping some cause you believe in because you are spending, right? The card companies are hoping that you’ll fall for the idea of “helping through spending” and rack up big balances, all in the name of helping some organization. But in reality you’ll feel good all the way to the poorhouse.
Think about one of these cards this way: If you spend $10,000 on a charitable card that pledges one percent of your purchases to a given charity, you would be “donating” $100 to that charity, assuming that all of that money indeed reaches the charity, which is not a sure thing. That’s not a lot of money, relative to the amount you spent. If you carry a balance on the card, you’ll quickly find that you owe much more than you are contributing. A $10,000 balance carried on a card at ten percent interest for a year means that you will owe an additional $1,000, give or take depending on how your card calculates balances. Net loss to you: $900. (Incidentally, affinity cards such as these typically charge some of the highest interest rates in the business because they want to take advantage of your loyalty to the card and they have to cover their program costs.) If you spend thinking that you’re helping some cause, you may find yourself overspending in order to up your “contributions.” You can find yourself on a slippery slope to big-time debt because all along you thought you were helping the charity, but you were really helping the credit card issuer.
In addition to being dangerous for your wallet, these cards might not be helping as much as you think they are. By the time you work your way through all the fine print on many of these cards you find that the points expire, or they don’t accrue the way you thought they did, or there are caps on the amount of points you can earn and contribute, or if you make a late payment just once all your points are forfeited, or certain purchases don’t count, or the money doesn’t go directly to the cause you thought you were supporting or that, once administrative costs are taken out, your points don’t go as far as you thought. There are all kinds of loopholes that make these cards work in favor of the issuer, not the charity or cause. Credit card companies are wired to help themselves, not charities.
So if there are so many problems with these cards, you should steer clear, right? Not necessarily. As with anything related to finances, you need to fully understand the product and adjust your expectations accordingly. Read all the fine print on any card you are considering and make sure you understand exactly what your contributions will be and how they are calculated. Ask questions. Who gets the money? When do they get it? What counts and what doesn’t for the purposes of the program? Are administrative costs taken out of my contributions? If you don’t understand the fine print, don’t sign up for the card. Don’t carry a balance on these cards because you will probably pay a higher interest rate and you don’t want your contributions overshadowed by the debt. Use the card only for things you need or would buy regardless. Don’t be fooled into thinking that your overspending will be a boon to the charity.
If you really want to help a cause (and yourself at the same time) give your money directly to the charity. Many charities are registered with the IRS in a manner that allows you to take a tax deduction on money you donate directly, something you cannot do with points earned on a credit card. Even if you can’t take the tax deduction, money given directly is likely to be put to more immediate use than points on a card. Most charities will still take a portion of your money to fund administrative costs, but it’s likely to be far less than that taken by a credit card issuer to cover their program. By the time the credit card issuer takes their share and the charity takes their share, administrative costs will have eaten up the majority of your credit card “contribution.”
A big plus of giving money directly: There’s no danger that the charity will charge you interest at the end of the month for making a contribution like a credit card will. Additionally, if you give money directly, you are likely to receive something in return. It might be a newsletter, a special gift, or some other token of appreciation. Your donation might buy you membership into the organization you’re helping. Credit card donations do not qualify for such perks.
If you don’t have money to give, give your time. You’ll be providing direct help to the cause you love and your labor frees up more money for the charity to do other things. If they don’t have to pay someone to keep the books, for example, they can use that money to fund their programs. You can also donate goods such as food to the local food bank or clothes to the Salvation Army. Your goods are then given or sold to those in need. Many donations of goods are also tax deductible. These measures are much more direct and personal ways of helping than accruing points on a card. You’ll probably feel better about yourself by giving in these ways than by spending on a impersonal plastic card.
Charitable cards aren’t all bad. If you understand exactly what you are signing up for and use charitable cards in accordance with the rules and loopholes the card issuer has constructed, you will end up making some contribution to the cause you want to support. It might not be as much as they want you to believe, but it will be something. It won’t be enough to really change the world, but you will be giving a small helping hand. If the cause interests you and you can use the card responsibly, it is better than doing nothing, if only marginally.
However, there are better ways to help charities than through credit cards. Giving your time, money, or goods directly to the charity goes much further than points on a card, plus you can get a tax deduction. Direct contributions give you a more personal connection to the charity you want to help. If you want to use a card for charity, I would suggest using it as only a small part of your overall giving strategy. You can use the card to supplement your gifts, but give the majority of your time and money directly. The charity and your debt load will thank you.