Credit card companies aren’t necessarily your best friends. They are in the business of making money. They want your money.
If you manage your credit cards wisely, they turn out to be very useful financial tools. However, the terms and conditions imposed by most credit card companies are designed to increase the debt you owe to the company. The more you owe, the more you pay.
Credit card convenience checks are a prime example of the tactics that credit cards use to entice you to increase your debt. Thousands of credit card checks are mailed out every year. They look just like a normal check that you would use with your checking account. However, you are charged interest rates on these checks. Some will offer a 0% or a low-interest teaser rate for a specific time period. Some will have a higher rate than your purchase APR. Most carry a 3% to 5% fee for the amount of the check. The fee will usually carry your normal APR and not the promotional teaser rate.
Airline miles and other rewards, such as cash back and gift cards are attractive for many consumers. Most cards will offer a bonus of 10,000 or 25,000 miles or double or triple the usual cashback rewards just for applying for the card. However, rewards cards usually carry a higher interest rate and higher annual fees than non-reward cards.
Credit card companies like to reward their good customers with increased credit limits. If you have a consistent record of paying your credit card and you carry a balance, your credit limit could be increased by your card company without you even requesting it. This may seem like a reward for being a responsible consumer, but it is also an encouragement to spend more money. This increases your balance to be paid back and increases the amount of interest you will pay back.
Balance transfers seem like a wonderful way to lower your interest rate for a while, allowing you to pay your debt back faster. Credit card companies don’t just offer you a zero percent APR to be nice, they want to make money. You will probably be charged a balance transfer fee, and if you aren’t able to pay the balance in full by the end fo the intro period, you will pay a higher interest rate on the balance. The companies are hoping that you will also use the cards to make purchases. The payments you make will go towards your lowest rate balance first. While you are paying off that balance transfer, the purchases you have made are building up your interest charges.
How nice it is to be offered a new card. You want to save 10% on your purchase; after all, you need to save money. So you apply for an instant credit store card, thinking that you saved money. But if you don’t pay the entire balance off each month, you will pay back more in interest than you saved on that initial purchase. Store cards will usually carry a much higher interest rate than a credit card, so the purchase is even more costly. If you must use credit, use a credit card, not a store card.