It’s no secret that credit card companies have intimate knowledge of lending loopholes and other practices to maximize their profits, even at the expense of the customer. Millions of Americans have credit cards, and owe credit card debt and aren’t aware that there are certain things these lenders don’t want you to know.
“Fixed Rate” Is Only Fixed Until…
The company decides to change it. That’s right! The credit card company can change your “fixed” interest rate anytime they want to. You’ll never know this, of course, because it’s written in the fine print of the credit card’s agreement, which is already a lengthy document to begin with.
Credit Card companies have full discretion to change, limit, or modify your interest rates at any time. Although they are legally required to notify you, they’re only required to give a fifteen-day notice, which is usually not enough time to adjust to the new (usually higher) interest rate they’ve signed you into.
Minimum Payments Keep You In Debt
If you’re constantly paying the minimum payment, you’re not working towards getting yourself out of that credit card debt. In fact, the interest rate on your purchases probably comes out equal to your minimum payment, so the only thing you’re paying every month is the cost of your interest, never the principal balance.
The longer you keep paying the minimum payment, the more interest they can charge you, and the more money they make in the long run. The interest rates are where they make all the money, so why would they want anyone to be motivated to pay off their balance quickly?
Try to pay off your monthly balance if you can, and don’t spend more than you can afford to pay except in times of emergency. A credit card can be a great tool to build credit. But when used irresponsibly, it can become a serious financial burden.
Credit card balances tend to build up quickly and stay around for a long time if you’re not financially capable of managing the high limits you’ve been given. Spend within your means, and budget your money so that you have the ability to make more than the minimum monthly payment and rid yourself of the principal balance.
Some Cards Charge Twice For Late Payments
Ever heard of a penalty rate for being late? Normally, you get charged a late fee of up to $35 for not paying your monthly bill on time. As if this wasn’t enough, some card companies actually charge a penalty rate when you’re late on one or more payments.
This raises your APR and makes the interest on your future purchases even higher than it was before, digging you further into that financial pit. What’s worse, is that the APR on all of your cards, not just the one you were late on could be raised. There are no federal laws that limit APR, so technically they could set your APR as high as they want.
If you think this is unfair, it’s probably spelled out in that hard to read, the fine print in the card agreement you sign in the beginning. Maybe it’s a good time to start reading those things.
You Rewards Program Is Not Set In Stone
We’ve all seen those great ads for 5% cash back or points systems on certain cards. This is a great marketing technique to make the customer feel like they’re actually gaining more by putting themselves into credit card debt, but there’s more to these reward programs than you may think.
These programs are not set in stone, and just like your APR, the terms can be changed at any time. Where once you had a great 5% cash back on your card, or 20,000 points, the company could decide they want to change those details and modify it how they see fit.
They Spend Billions In Marketing To Get You To Open An Account
Credit card companies have no shame when it comes to endless marketing materials, in the form of television, radio, digital, internet, and good old-fashioned mail ads. At some point, each one of us has received a “pre-approved” offer from a credit card company, congratulating you for being pre-approved for a card and offer you the chance to take the “limited time offer”. This is clever marketing designed to make you think that you’re actually gaining something that no one else can get. And that their card is superior to all of the other options out there.
The consumer is what drives credit card companies’ profits, and so it’s in their interest to spend money on as much marketing as possible. Clever ads where everyone is smiling, rewards programs, and point systems are all just clever little additions to make the card seem more appealing. These companies literally spend billions every year on marketing and research to better understand how to get more people to sign up. That says a lot.
It’s All About The Money
Credit card companies are after one thing: profits. They spend billions on recruiting new cardholders and can modify their terms and conditions at will, with very little notice to the consumer. Unfortunately, there’s a very powerful lobby behind these companies, making the laws surrounding their practices fragile at best.
Remember to always pay your balance as soon as possible, make more than the minimum payment, and never spend more than you can pay back quickly. There are hundreds of options for credit cards and help for when things get out of control. Get Out of Debt’s online resources include consolidation, financial advice and planning, and other debt management options.
