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Credit cards are not pure evil, provided you use them prudently. You must judge a credit card as per your needs, as more and more American consumers are getting into debt trap because of careless use of credit cards. Currently, an average credit card holder has four credit cards and about $4,000 in high-interest debt. So you need to think judiciously whether a particular credit card is just right for your wallet; or is that credit card thinning your wallet? Also, as a cautious consumer you should evaluate whether interest rate charged is an economical or exorbitant proposition.
In such an almost saturated credit-card market, lenders look for new ways to boost up their bottom lines. As a consumer, you should be careful while using a credit card. Precisely, credit cards are helpful if you take on short-term credit. It should never be used for borrowing. Rather, it is a product that should be used for buying something that your wallet can afford to pay for within a month or so. If you utilize a credit card for the management of cash flow then, it can be very useful.
Usually, consumers splurge each day over $5 million using expensive credit cards to borrow an increasingly large amount of money. On the other hand, credit card companies, as a whole, are making millions of dollars by charging credit cardholders high rates of interest and hidden fees.
Credit cards yield handsome profits to their issuers for several reasons. The most important is the high interest rate, as interest on credit cards alone accounts for the bulk of the profits earned by banks that issue credit cards. If you're paying more than 12% interest on your VISA or MasterCard, with the prime interest rate hovers around the single digits, lenders charging 13% to 21% interest on credit card truly is a hefty premium.
People with large credit card balances have always paid high interest. Moreover, when the low rate period expires, the existing balance is subject to much higher interest rates. Some credit card companies have actually started to get rid of credit cardholders who pay off their balances each month. Further, the credit card issuer may seek to shift you to a card with an annual fee or a debit card. Increasingly over the years, credit cards companies have been banking on the hefty fee they charge on credit cardholders. Since 1996, the amount collected by lenders as late fees has risen more than fourfold - from $1.7 billion then to $7.3 billion last year.
Many companies charge an annual fee for issuing a credit card, while some other credit card companies charge you a flat fee, apart from interest and other charges, for using their credit card. Credit card issuers are curtailing the span of time for payment of bill, and a late payment could cost you in ways you?d have never expected. A good number of companies charge late fees, over-the-limit fees and other miscellaneous charges. If you are unable to comprehend the language and statement of credit cards, then you may end up in the soup. Try to understand whatever is written on credit cards, and, if required, even consult some financial experts to avoid coughing up extra money to the credit card companies.
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