Credit Card Fees
Credit card companies are always sending out offers in the mail that promise low interest rates, high credit limits, rewards programs and no hidden fees. However, the fine print usually includes a statement or two that gives credit card companies the right to change their policy at any time as long as they notify the credit card owner.
Credit cards can be helpful in times of need, but they can be financially harmful as well. The main downside to credit cards is that customers often find themselves trapped in a cycle where they are accumulating so much interest that they just cannot find the money to pay off what they owe. The most important thing to keep in mind when applying for a credit card is that credit companies do not exist to help you. They are part of a business and the primary goal of a business is to accumulate profit.
Credit card offers are often worded in such a way that they are difficult to understand for ordinary people who are not educated in finances or law. Before applying for a credit card, read through the offer as thoroughly as possible and look for answers to the question, “how is the company trying to profit from my credit card use?”
The most obvious and common way in which credit card companies profit from their customers is through interest rates. Every time you spend money with your credit card, the expenses are added to the amount of credit you have used. Each month, a specific percentage (the interest rate) of the total that you owe the credit card company is added to what you owe. So, if you spend fifty dollars on a haircut and you have a fixed interest rate of ten percent, you will owe fifty-five dollars at the end of the month. The main profit that credit card companies earn comes from your accumulating interest.
Interest rates can be fixed or variable. Fixed interest rates are always constant unless the credit card company notifies you of a change. Each month, you will accumulate the same specific rate. Variable rates change depending on the prime rate. Most variable rates are a specific percentage plus the prime rate. So, if the prime rate increases, the variable rate will increase as well. Try to find credit card offers with low, fixed interest rates.
Another method of profit utilized by credit card companies is overdraft fees. If a customer spends more than their credit card limit allows, the credit card company will charge a fee for each purchase. So, if your credit limit is full and you purchase gas for your car and coffee on your way to work, the overdraft fee will be charged twice to your account. Luckily, most credit card purchases over the limit are automatically declined at the time of purchase. However, you should definitely verify that this is the case before accepting a credit card offer.
Another source of income for credit card companies is the annual fee. Many credit card companies charge a fee every single year, regardless of how much money you owe them. The annual fee is a feature that is commonly added to the credit card contract after you have already accepted the offer. Look for credit card offers with no annual fees for at least a year and always read your incoming mail.
The best thing you can do to make a credit card work for you rather than against you is to be informed. Educate yourself about the various aspects of finances and money Saving money through credit card use is easy as long as you know what you are getting into prior to accepting an offer.