Credit card companies are not charitable organizations. They are in business for themselves; they want to make money, they want you to spend your money by using their credit cards. Whether the credit card company is your friend or your foe depends entirely on how you manage your finances.
If you are disciplined and you manage your credit cards prudently, credit cards can be tools to aid you. But even if you are money-wise, the whole credit card business is designed in such a way that the terms and conditions are geared up to increase your debts, plus the larger your debt amount, the more you end up paying back.
Credit card companies use different ‘awards’ to encourage you to spend more and thereby increase your debt to them. Credit card convenience cheques; totally innocent and looks like any normal cheque you would use with your current account. Be assured that you will be charged interest on these cheques. They offer you 0% or a low interest rate for a limited period and most carry a fee of 3 to 5% of the cheque amount; this is called a ‘teaser rate’. Your normal APR will carry the fee, but not promotional or teaser-rate.
Awards such as airline miles, gift cards and cash-backs attract many consumers. Some companies will offer double or triple cash back awards or a huge bonus of up to twenty five thousand miles as an incentive for you to apply for their card. As a prospective client you must be aware that reward cards normally have far higher annual fees as well as having a higher interest rate than the plain no-rewards cards available.
Most of us feel honoured when we qualify for an increased credit card limit. This tells us that our credit card history is healthy and that we have a good record for paying our credit card consistently and we have a positive balance. Often your credit card company will increase your limit without you having applied for this. To the prudent credit card user this appears to be a reward for having conducted his financial matters wisely. The goal of the credit card company is actually to encourage you to spend more, this in turns lead to your balance of debt being higher and this means the amount of interest you will pay back will be more; their goal has been achieved, they make money.
Another pitfall for the unwary consumer is the store card you are offered so often. This card usually comes with a percentage savings on your first purchase, but unless you are able to strictly pay off the entire monthly balance, the very high interest rate charged will totally wipe out your initial saving. Often it is wiser to use your normal credit card instead of a store card.
Your credit card is your friend and your foe; the responsibility rests entirely with you which of the two it will be. You need to maintain strict discipline at all times or you will find your credit rating being affected negatively, and this will have long term repercussions.
