For card members who’ve overstayed their welcome, American Express (Stock Quote: AXP) is kicking you out, but not without a parting gift. That just wouldn’t be classy.
Instead, the credit card company will pay certain credit card account holders with high balances and little payment activity $300 gift cards in exchange for paying up and closing out their accounts. (This does not apply to American Express charge card holders, who must still pay off their balances every month.)
It’s a move that reflects just how ugly it is out there for credit card companies that are trying everything they can to minimize the hundreds of billions in defaults expected this year.
American Express’s cash offer arrives as the company reports a rise in credit defaults and loan delinquencies between December 2008 and January 2009.
“[Amex] is trying to provide enough incentive so that the consumer will decide it’s worthwhile to pay that debt ahead of other bills they owe,” says Gerri Detweiler, credit advisor for Credit.com. But will it work? It may not be realistic for some who are behind on a lot of other debt, including a mortgage, says Detweiler. AmEx may have to take a back seat if the cardholder is barely able to keep a roof over his head.
The Fine Print
Customers who received the offer by mail must respond and sign up for the offer by Feb. 28. Participants must also pay off their balance by April 30. If not, their accounts will get turned off anyway and the $300 gift card offer goes bye-bye. The debt will still be there, and AmEx says account holders must continue to make their minimum monthly payments until the balance is paid off entirely.
This offer is not really a freebie. Remember that closing a revolving account, like a credit card, may hurt your credit score, no matter if the card company shuts it off or you do it yourself. That’s because losing a line of credit may impact your credit utilization ratio, a big factor in determining your credit score. For some this may not be a huge deal, although, according to Detweiler, “in these times every point on your score helps.” Of course, there’s no stopping AmEx from closing your account down the road, especially for customers who’ve been identified as high risk.
“If you can afford to pay [off your balance] and you want the $300, it may make sense to just go and [close the account on your own],” says Detweiler.
P.S. That $300 gift card may be considered “taxable income.” So it may end up being more like $200 or even less, depending on your tax bracket. Also, by signing up for Amex’s offer you effectively give up any Membership Reward points on the card. So if you want to use your 40,000 points for a mini Ipod (Stock Ticker: AAPL), you may want to do it before signing up by this Saturday.
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