How lenders work, and how they'll make a tidy fortune off of people who don't know what's going on.
Credit card companies may seem like very smart, money-making businesses that take advantage of every loophole to get the most out of the interest payments and profits they get from you every month. But that couldn't be further from the truth. These financial institutions work on simple rules and take advantage of the fact that consumer demand and the naivety of their customers keep business going.
But it doesn't have to be like that. If you know what to look out for, you can cut your costs and stop these businesses from making a dime more than they have to.
Lenders take advantage of the fact that many purchases are made with the same card. For example, if you use a balance transfer special card rate to buy things at the grocery store or mall, the payments are set up so that you'll end up paying a lot of money on the whole balance. In the war against consumer debt, you need an army of cards to help you play your plastic right. Your credit card costs will go down if you use the right tool for the job.
If you already have a lot of debt on your credit cards, transferring the balance will usually cut your interest costs by a lot. This means that your new provider will pay off the balances on your old credit cards or store cards.
Then, you have to pay back the money at a (hopefully) lower interest rate for a set amount of time, or sometimes for an indefinite amount of time. The key to making this work is not to spend money with this card. This could mean that the credit card company will raise the interest rate on the WHOLE balance to a higher level.
People who charge things to their credit cards but don't pay them off every month should try to keep the interest costs as low as possible. Find the lowest purchase rate on the market, but keep in mind when you'll pay off the balance in full (e.g., when you get a bonus, when your bonds mature, etc.) and don't let it get out of hand.
If you pay off your balance in full every month, it doesn't matter how much interest you pay. Instead, think about the benefits of using the card to buy things. The key to this is the way the reward is set up. Some credit cards give you cash back or points. There are a lot of different plans, but if you choose the right one, you can get a lot out of it. Most of the time, it's easier to just get a Cashback card, where the benefits are more obvious, but reward programmes can be great, especially when they offer double points to new customers, etc.
If you're one of the lucky ones who doesn't have any debt, you can get back at credit card companies by using their products to make free money. The plans are easy to mess with. If someone gives you money for free, you can put it in the bank and earn interest on it. There are many quick and easy ways to put money in your savings account. Once it's there, you can just let it sit for the interest-free period and pay it back in full when it's over. You can make a lot of money this way, but you should only do it if you have a good credit history, no debts, and are willing to put in a little work.
Almost always, you should avoid using store cards. They have the highest interest rates and are easy to get into debt with because they are sold at department store counters. You should never use them to borrow money, and if they offer any perks or benefits, make sure they work for you. Some, for example, give a 10% discount on the first purchase. If they do, make sure you take them up on it when you want to buy something big, so you can save the most money possible. But as a general rule, you should stay away from these pricey options like the plague. Stick with a credit card that charges low interest on purchases, and you'll be fine.
But there are some people who just can't get new credit cards. Sometimes there are good reasons for this, but sometimes it's because your credit reference file has wrong information. Apply to a credit reference company like Experian and make sure your record doesn't have any mistakes. After that, there are a number of easy things you can do to improve your credit score and help you get the best credit cards for your needs. When you're in a strong position, you can use credit cards to your advantage.
