Ask the Readers: How Do I Pick the Best Credit Card?
Published on - January 29th, 2010 (Modified on - November 3rd, 2011) (by J.D. Roth) Sometimes I get questions that are out of my league. In the past, I’ve just sort of ignored these, but I’d like to try to answer more of them. To do this, I’m going to start asking for tips from some of the experts I’ve met through GRS.
For example, my good friend Mac from Get Fit Slowly (where I may eventually write again some day), came to me this week with a question about credit cards. In fact, it’s a question I get surprisingly often: He wants to know how to find the best credit card for his needs. To find out, I tapped a couple of the experts in my professional network.
First, let’s look at Mac’s situation:
My wife and I are long-time users of the Alaska Airlines Platinum Credit Card. We use this card to earn frequent-flier miles, and since we primarily fly up and down the West Coast to visit family with our children, Alaska seemed like the way to go. The card also has a few other perks:
- One frequent-flier mile for every dollar spent.
- Two frequent-flier miles for every dollar spent on alaska airline flights.
- One companion ticket each year (buy one full-price ticket, get a second for $99).
I have no idea what the interest rate is because we pay off the card every month without fail. Neither of us likes to carry cash, so we basically use this card for everything we can. (We even use it for small purchases like morning coffees and video rentals.)
Recently, I’ve been unhappy with some changes they’ve made to the card benefits. So, I’m looking into switching cards and was wondering if you could offer some advice. I’m looking for a rewards based card for folks who pay off their balance each month. Our rewards would be used for travel, so I’d like the best travel rewards primarily, but I’m not opposed to other rewards programs such as merchandise rewards, etc.
A few of the cards I’ve looked at but haven’t pulled the trigger on are the American Express Platinum Card and the Chase Sapphire Card. I’m not sure which of these to choose from or if there are better options out there. What are your thoughts?
My thoughts are that looking at credit card offers makes my mind numb. I’d rather go to the dentist!
As most of you know, I carry just one credit card (a Capital One No-Hassle Cash Rewards card), and sometimes I think I should get rid of even that. But I really do like getting one percent cash back on the things I buy, so I’ve kept the card. (And I use it — a lot.)
If I were to start looking for a new card, I’d start by checking two sites: Index Credit Cards and Card Ratings. There are other credit-card sites out there, but these are the two I know best. Both have huge lists of cards that you can sort through to find the one that fits your needs.
In fact, because I know so little about this subject, I contacted both sites to ask if they could give feedback on Mac’s predicament. Here’s what Curtis Arnold from Card Ratings had to say:
Many of our readers share Mac’s frustration. I personally have never been a big fan of airline reward cards, but particularly in this tough credit environment; my personal mantra is that cash is king.
I would challenge Mac to take a look at our recent press release regarding the best credit cards of 2009. There are a couple of cash rebate credit cards that give you 2% cash back on every purchase and several cards that give you 5% back on certain types of purchase. If you do the math and compare the rebate percentage of these cards with your current one, I would be shocked if your current card even comes close.
Adam from Index Credit Cards suggested two options, depending on how important the travel rewards are to Mac and his wife:
First is the Citi PremierPass Card, which pays you points on purchases as well as on actual travel miles flown. There’s a no-annual-fee version of this card as well as a card that charges $75 annually but offers a more generous rewards package. Which you choose would obviously depend on how often you use your card and also how often you would buy airline tickets with it. You can use the points from this card for travel across airlines or for other rewards from Citi’s ThankYou rewards program.
Second is American Express Blue Cash. Based on Mac’s description of his card use habits, I’m assuming he puts a lot of expenses on his card every year. This card is a cash rebate card that works best the more you spend with it. At first you earn a modest 1% cash back on gas and grocery purchases and 0.5% on other purchases, but after you’ve spent $6,500 with the card, those reward percentages go up to 5% on gas and groceries and 1.25% everywhere else, with no limit on your rewards. Think hard about your expenses, though, because if you won’t spend significantly more than $6,500 per year, you’re better off going with a straight cash back card without this tiered formula.
See why I went out to the experts? This is all gibberish to me. Maybe I’m hurting myself with my ignorance, but I’m content with my Capital One No-Hassle Cash Rewards card. It gives me one percent cash back on everything I buy. That’s it. No muss, no fuss. The whole thought of having to track travel miles makes me tense! (Seriously.)
Anyhow, what are your thoughts? Where do you go to get info on current credit card offers? What should Mac look for in a card? Can you recommend any options for a family that doesn’t carry a balance, but uses their card for most of the purchases they make?
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Troy–
I’m free-riding on people who don’t use credit responsibly. Better me get some of the gains than the credit companies getting it all.
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@Tyler: “And yes, computer programmers really view the world this way.”
No, I can assure you that we do not.
Your analogy is just a convoluted way of saying “Your opinion is bad, my opinion is good” – you offer exactly zero evidence to back up your position.
Here watch: “You could also use the the little letter tabs on the side of the dictionary to turn to the section for the first letter of your word, then use your knowledge of the alphabet to turn to the approximate location for each subsequent letter.”
Since my solution is effectively constant (for a given word length) and your binary search is O(log n), CCs must be better, right?
Just to sum up:
CCs are a convenient form of payment, and grown-ups can use them responsibly. The various “rewards” only matter when selecting a specific card, which was the question here, after all.
No, you cannot convince someone that something is not convenient for them.
If you do not believe that it’s possible to use CCs responsibly, please do not get one.
“Credit cards are evil and cannot ever be touched by anyone” is an ideological position and not the common sense big-picture view.
How hard is that?
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Wait! You mean that if credit cards themselves are not evil then I have to (gasp!) actually take responsibility for my own spending?!? Nah, let’s just keep pretending that the credit cards swipe themselves
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@Dmitri
“@Tyler: “And yes, computer programmers really view the world this way.”
No, I can assure you that we do not.”
Yes, we do.
I think you missed the point of what Tyler was saying. His point was: It is better to put your limited time and energy into big wins, not small ones. Unless you disagree with that premise, “evidence” in this case would be moot. He was offering an analogy to help folks understand why rewards are in the “small win” category vs. the “big win” category. His analogy made sense in context, yours did not.
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As others have mentioned, a common strategy is to choose the best combination of rewards cards for one’s spending profile and then use the best card for certain categories of spending (e.g. gas, restaurants, travel, etc.).
To figure out a good combination of cards for your particular categorical spending profile, you might be interested in the rewards calculator at
http://www.creditcardtuneup.com/
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@Des, @Dmitri
Your constant time solution just makes the cost of page turning even more irrelevant than my log(n) solution.
My point was not “O(log(n)) is faster than O(n) therefore anything I say is true.” It was, like Des said: Why focus on making tiny 1% improvements when a change in the way you think about the problem will probably have much greater positive impact?
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I don’t want to get into the good/bad argument, but one word of caution to those of you that like to support local banks/credit unions by getting their credit card. Check the fine print on that. Many small banks/CU cards are actually issued by the big bag banks of the world. I work for one of them and we have 6,000 financial institution clients for whom we issue cards. Everything appears to be mom & pop bank, but we manage the whole thing.
Also, we lose money on credit card “transactors” as we call them. If you have a card that gives blended rewards rate of around 2% and you pay off your balance on time each month, we lose money. Between paying the rewards and making the required payments to the Visa/Mastercard system, we lose money on every dollar charged. Of course, around 70% of our customers revolve balances generating interest and fee income, but that is their choice.
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Hubby had his wallet stolen once. CC were reissued, no penalties or fees for phony charges. The cash in his wallet? Strangely, it was never recovered.
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@84 – I’ve always wondered how these credit card studies are conducted that show that people spend more with credit cards than those who pay cash. How do you make a double blind study out of that?
I often pay cash when I buy lunch for myself since it’s a small amount, but if I’m paying for 2 or more I’ll usually pay with a credit card. So I’ve paid twice as much than I would have if I had paid in cash. Does this prove people who use credit cards spend more?
And maybe we hung out and had a beer or two along with the lunch. So if the studies try to compensate by calculating it per person, I probably spent more that way as well, but it has nothing to do with cash vs. credit card. I’m not going to decide to forgo the beer because I’m paying with cash.
It’s a rare purchase that costs over $100 and I usually carry about that much in cash, so it’s not likely I’d save money by not being able to afford something if I only carried cash. It’s simply more convenient to pay larger bills with a credit card since I won’t have to go to an ATM as often.
Maybe people who pay with cash are more frugal in their choices by nature. If you gave a frugal person cash one day and a credit card the next, I’d bet they’d pay the same either way.
I’ve looked at my credit card statements and can’t figure out how I would possibly spend 15% less just by using cash. Most of the money is spent at fuel stations, grocery stores and Target. We pretty much consume or wear out everything we buy, and even use the free plastic garbage bags in which they bag our purchases. I mean, really, would I buy less gas if I paid in cash? I don’t think my manager is going to let me stop driving to the office because I’m paying in cash. Since I can take fuel out of the equation, now I’d have to spend 20% less everywhere else to make these studies true. I’m not buying it.
Then there’s the fact that I’ve lost cash before and I’ve had it stolen, but I’ve never lost money on a credit card. In 15 years of having a credit card, I’ve never paid a late fee or a finance charge (Yes, i’ve been late, but have always talked them out of the fees). So, the bottom line, is that these “studies” seem like bunk and are likely just advertising aimed at merchants. Either way, they are a poor argument against credit cards. I’ll happily pay off my balance every month and take my $300 a year cash back. I figure that if I’m “overspending with a credit card” that will probably cover it.
BTW, I usually use the Costco Amex card….should be getting the annual cash reward any day now.
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I love having a credit card and paying it off each month. It does make my life more convenient. I can put all purchases on my card, and then use the transaction log as a budgeting tool each month. I could use a debit card for this, but I never would, because there is no reliable fraud protection for a debit card.
As for cash, I would lose money if I used cash, because I hate carrying change. When I used to use primarily cash, I would generate about $300/year in change that would collect in random places around my house. That money was essentially lost, because it could be a year or two before I consolidated it all and turned it into a bank.
So really, it’s more of a personal style issue than anything else. It also depends on how good you are at math. A lot of people can do math when they sit down and think about it, but can’t or don’t keep track of their spending on the fly. I can always tell you to within 10% how much is on my credit card at any given moment, so it isn’t like I can trick myself when I make large purchases.
As to the original topic, I have no idea what card would be best, because I use a B&N credit card that generates gift cards and extra rebated from B&N. It’s really good for me, because 75% of my discretionary spending is on books/music/movies.
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I like the Starwood American Express card, because the points can be transferred to any airline or used to book hotels in the Starwood family.
If you travel and vacation a lot, an airline card or other type of affinity card may be best. Otherwise a cash reward card is probably the way to go.
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This was certainly a great discussion! Thanks to everyone who suggested PenFed. They have great mortgage rates as well. Just an FYI, you are only required to open an account with $5 if you are eligible to become a member. If you do not qualify to become a member, you can join the National Military Family Association for a certain fee. I believe this is what one of the previous posters was referring to when they mentioned having to pay a $30 fee to join.
Thanks to everyone’s comments here, I looked up my Discover card info and realized that I was only getting 1% on purchases over $3000. Before that mark, I was only earning .25%. I will still keep it for the rotating 5% categories, but the PenFed card will be much better for my needs.
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#108
If you are happy using your credit card, I am not trying to convince you not to use it. As many people have said during this conversation (and others) we are all adults here and are able to make our own choices. If you don’t want to believe that the hundreds (more likely, thousands) of people employed by banks and credit cards and the merchants you patronized might spend a little more time figuring out how to make money off of their customers than you are ever going to spend figuring out how to “optimize” your credit card spending/rewards, that is ok too. And if you really believe that you are making more money using a rewards card than you would saving by using cash – hey, you can believe anything you like.
I will continue to wonder why so many think that it is the merchants and credit card companies who are wrong about spending patterns when using cash or credit. They are the people who choose to take credit cards because they know that it is better for their business to do so and they WILL MAKE MORE MONEY. There hasn’t just been one study that shows this. It is study after study after study that has shown that most people spend more on credit cards than they would in cash (the latest one I am aware of being on done by MIT this past year).
http://web.mit.edu/simester/Public/Papers/Alwaysleavehome.pdf
As for your lunch experiences, I don’t know if those prove what you think they prove. Do you collect the money you are spending on lunch from the people you are covering when you go out with more than just yourself? If not – how is your credit card v. cash use example even applicable to the conversation since you only pay cash when it is just yourself so it isn’t even something that you can quantify appropriately? And if you do collect the money from the other lunch goers – do you immediately pay that money towards the credit card balance? The one you already admitted would be larger than it would have been if you had used cash because your spending patterns change when you eat out with others rather than when you eat out alone (having the beer with company that you wouldn’t by yourself…something I am not too clear on because why wouldn’t you have a beer with lunch anyways if that is something you like)? Or does the cash collected just go poof into your spending budget without really being accounted for?
I don’t know your particular spending patterns. It doesn’t matter even if you, personally, are the rare exception that is somehow able to spend the same or less on their credit cards that they would have in cash. Because, if you are the rare exception – you are the exception that proves the rule – not disproves it.
Take a look at the history of credit card use (if you haven’t already). Consumer spending rose precipitously after credit become readily available to a much wider segment of society than before. If people did not in fact spend more with credit cards – how do you account for that enormous rise in spending? Our nation is in a huge debt state ($1.5 trillion in consumer debt in addition to the mortgage debt that people hold). Do you really believe that we would have the same amount of debt if credit cards had never been readily introduced and accepted everywhere?
I am not going to say that credit cards don’t have their place in people’s financial lives. I am not trying to convince people to never use a credit card. I am trying to challenge people to really consider their beliefs of what the true benefits of their credit cards may be. If all the studies are true about people spending more on credit cards than cash – then the reward programs may end up costing the individual more to earn and redeem the “reward” than it would have cost to just buy the “reward” outright. When I hear someone talk (brag!) about earning a $50 gift card to any store after spending $5000 to get it, I do have to wonder if the average consumer couldn’t have save that $50 out of the original $5000 easier than spending the $5000 to “earn” it. Am I truly to believe that most people don’t create at least 1% waste in their shopping patterns? And I don’t think many people could convince me that every $5000 that they spent would have been spent regardless, and therefor the money was truly “free”.
That’s where I am coming from, obviously you don’t need to agree with me.
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JD…in order to answer your question…
We also us the No Hassle Rewards Card by Capital One. We live overseas and they don’t charge an oversees service charge. That’s one plus.
I had to chuckle at those who contend that “cash is king”. Lately I had to go and buy an airline ticket for a discount airlines at a local travel agent. I couldn’t get the cc to work on line (Wizz Air). I had to pay an extra $13 per ticket per leg to the travel agent…and that was using cash.
I buy our health insurance via cc every year. It’s over 3K/year. There is no “discount for cash” deal. I’m not sure where some of you get off saying that “cash is king”. It is only king where what you buy is actually cheaper because you use cash. If you contend that you will spend more because you have plastic, then maybe so, but not because the items are cheaper. They cost the same.
Last year my husband went to Israel for a month. The hostel was going to charge a 1.5% surcharge on the total if we paid by cc. We sent a check instead.
I am uncomfortable with the idea of a debit card.
Some people go through cash like water–CC at least make you think before you hand the card over. Others are opposite.
However, I don’t live in the states. It is incredibly easy in the states to use cc.
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Credit cards are useful for people who know how to balance their budget and are generally conservative in their purchases (like me). Sadly, most Americans are not in this group. The selfish side of me wants them to continue with their stupidity in order for me to keep receiving my cash rewards. However, if I were advising them, I would suggest that they continue watching Dave Ramsey and blow up their credit cards. They obviously have no self control and it would be better for them to lay of the credit crack. On a side note, my credit card gives me 2% off all my daily purchases, bills, etc. I love it.
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I have to echo what other people have said — the best credit card is no credit card. Get a debit card or a pre-paid card. The banks don’t need any more of our money after the $800 billion we handed them last year.
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I discovered the following website a few months ago:
http://frugaltravelguy.blogspot.com/
The blogger gives great tips on maximizing travel rewards through smart CC use. Since I found out about it, thus far, I have been able to amass 4 round-trip flights on various airlines. For example, I got the AMEX Starwood CC, both the personal one and the business one. They gave me 20,000 initial bonus points and have no fee, at least for the first year. Starwood gives you 5,000 extra points, so I transferred the 20,000 points into my Delta account and go 25,000, enough for one flight. The blog talks of the art of credit card churning, which may not be very popular at this blog, but works for myself and others. I use CCs for things I need, I could never conceive of buying something that is not in my budget (for which I use mint.com). I have never paid interest in my life since I never overspend and pay my bills on time every month. You might consider the art of credit card churning only if you can trust yourself and want a few free round-trip flights.
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“I have no idea what the interest rate is because we pay off the card every month without fail. Neither of us likes to carry cash, so we basically use this card for everything we can”
I really agree with Mac. Use your credit card to your advantage it makes your money go a lot further. 5% on gas, 2% on food it all adds up.
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The Schwab visa w/2% back has worked very well for us the past few years. We charge pretty much everything that can be charged (it’s rather surprising how many vendors/suppliers will take a visa) and pay it off every month.
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I would never fly Alaska Airlines again. They abused my luggage. I saw them do it through the window. The luggage clasp was broken on one side (by the AA handlers) and they lost my luggage strap so I had to go out and buy a new one in the middle of the trip. Too bad Japan Airlines doesn’t go to Alaska and too bad they are going bankrupt, they were or are the best.
Oh! by the way does it really matter which card you have as long as you pay it off on time at the end of the month? That’s the only way to fly!
Ok the rewards would/might make a difference.
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As far as I’m concerned, the best credit card for anyone is the one where you can pay it off in full every month. If you aren’t doing that, it doesn’t matter what kind of rewards or points you are getting – you still are giving money to the lenders.
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@ Melissa A. in #98: It’s very, very difficult. When we were renting a car for a business meeting this weekend a girl at the next counter was trying to rent one with a debit card. They were making her jump through additional hoops including making her show a boarding pass with her return flight on it. I have no idea if it’s possible to pay with a check at the big chains. If you prepay with a travel agent you might be able to pay with a check.
It’s my understanding from experience planning meetings that when you book hotels or rental cars with a debit card they pre-grab a chunk of money, probably more than you will finally end up paying, and put a hold on that for the duration of your stay + a few days. They will then release the hold and debit the actual amount on your bill. Accidentally swiping a debit card is a hugely bad idea. For one attendee it took our head meeting planner a few weeks and a lot of negotiating to get all of her overcharge fees reimbursed (they had also miss-billed her, so it was their fault) and her money returned. It’s very difficult to switch once it’s swiped once.
It certainly can be done but you need to have a lot of extra cash in your checking account. And remember that if you’re on vacation you need to have money to spend on other things too.
I have seen a hotel take cash but it was a Red Roof Inn and the guests had to leave an additional deposit to cover possible damage. I have never seen an upscale hotel take cash or a check.
Airlines are pretty good about letting you pay with debit. I believe you can pay with a check but you need to go through a travel agent (maybe a gate agent at the airport itself? I’ve never tried.) No idea if you can pay with cash, I guess it depends on your travel agent? I’ve never seen a ticket agent in the US be able to take cash for anything.
Personally I would keep a credit card with a several thousand dollar limit just for travel. Use it to pay for something small every month or so and you should be fine.
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<The best credit card is no credit card at all. Live debt free, and don’t buy things you can’t afford. If you have to have a credit card (which no one ever does) then be sure to pay it off early to avoid interest charges. Also, try a checking account with a cash balance of $3k and a debit card instead. Just pay yourself back instead of paying anyone interest. I’ve been debt free (aside from my mortgage) for 3 years and counting – you can too.
Excellent comment!
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Having (and using) a credit card does not mean being in debt. It’s nice to see that people will actually take the time to read the article, and maybe even a few comments, before posting their own beliefs that are almost completely, but not totally, unhelpful.
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JD;
Here is an issue that I don’t ever see covered in articles about how to pick a credit card:
location of call centers
Since nobody else covers it, it could be a “scoop” for your financial writings as it also applies to where companies such as H&R Block send raw info for processing as well as other big companies.
The issues are:
1. Your vital financial information is being processed by foreigners who are not bound by our laws.
2. These people are frequently hard to communicate with over the phone….the very reason for them being there.
3. In regards to #2, it creates an amusing situation when credit card companies have commericals to warn their customers about fishing ( scammers posing as credit card representatives ) when their own people who call you up have thick accents.
So, JD, does your beloved Captiol One credit card use foreign call centers?
Is there a listing to let consumers know which ones do and do not?
I’ve heard that if people request American call center people many companies have such staff to honor those requests. Is that true?
I heard a newscast about a year ago that a British credit card company pulled its call centers out of India in response to complaints from their customers.
Outsourcing isn’t a trend written in stone.
If we get in the habit of at least asking where the call center people are the companies who handle our money will know it is an issue.
There are plenty of Americans out of work who do our call center jobs. This was true even before our current economic mess.
Instead of sending a call center to India big corporations can send them to the rural south, the rust belt and other places where wages are lower, but those wages will go into American pockets instead of leaving the country.
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I use the Schwab Rewards Credit Card…2% back on every dollar, no minimum. You have to bank it in a brokerage account but they are free to open and you can e-transfer out when ever you want. It paid me out over $400 in ’09 (mainly because of work expenses) and I got it in April I believe. Easily the best rewards card I found after a long search. (I also pay off in full monthly). Hopefully it will still be available for some of you to take advantage of.
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Hi,
I would like to ask if anyone here knows about credit cards that are being offered to all Europeans? I live in Malta and locally we don’t have a wide choice of credit cards to choose from. It is only banks that offer credit cards, whilst abroad many big private businesses offer credit cards. (ex. amazon/play/tesco etc.)
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“@ Melissa A. in #98: It’s very, very difficult. When we were renting a car for a business meeting this weekend a girl at the next counter was trying to rent one with a debit card. They were making her jump through additional hoops including making her show a boarding pass with her return flight on it. I have no idea if it’s possible to pay with a check at the big chains. If you prepay with a travel agent you might be able to pay with a check.”
Nonsense. I have never, ever, ever, had trouble renting a car, a hotel room, or buying plane tickets with my Visa debit card. If one car rental company is giving you grief, take your business elsewhere.
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