Credit card companies are notorious for their exorbitant profits, hidden fees, and “gotcha” tactics for making money. Many consumers think their credit card company takes advantage of them with outrageous interest rates and they feel stuck in a never-ending cycle of debt. After all, credit card companies make most of their money off interest on consumers who carry a balance. But as a consumer, you have the power to stick it to your credit card company and take charge. Here’s how:
Pay off your balance every month
Credit card companies make the bulk of their profits from high interest payments cardholders have to make on unpaid balances. If fact, credit card companies make you attractive offers to get their cards in hope that you actually DON’T pay your balance in full every month. One of the best ways to stick it to your credit card company is to make sure you pay your full balance so they don’t profit from you like they hoped they would.
Pay on time
Credit card companies often tack-on extra fees for late payments. Why put extra money in the credit card company’s pocket by paying your statement a few days late? If you can afford to pay your statement, always pay it on time. And never skip a payment!
Consolidate your debt with Peer-2-Peer Lending
If you are carrying a balance on your credit card, then the credit card company is making a killing off you. One of the best ways to get back at them is to consolidate your debt into a lower rate through another service so the credit card company no longer profits from your misfortune.
There is a new form of debt consolidation called peer-2-peer (p2p) lending that is available to borrowers with credit scores over 640. P2P websites allow you to borrow money from regular people (peers) to pay off your credit cards. You can often get a lower rate through these services, which can save you hundreds, if not thousands, in interest payments.
The largest P2P service is called Prosper Marketplace, where you can borrow between $2,000 and $35,000 at rates as low as 6.73% with payback terms of 3 or 5 years. You can get your free rate quote here.
Pay with cash
Many consumers don’t realize that in addition to making money off of you, credit card companies also charge business to accept credit cards. Most credit card companies charge 2% of a transaction plus 25 cents every time a business runs your credit card. So if you pay for a $25 purchase on your credit card, about 75 cents of that goes to the credit card company instead of the merchant.
When you pay for your purchases with cash then the credit card company makes nothing off of that transaction and all of the proceeds go to the business. This is especially helpful for small local businesses. It also means you don’t have to worry about carrying a balance on your card.
Don’t pay an annual fee
Many cards offer rewards that consumers love, but also charge you a yearly fee to get those rewards. Make sure you do the math to be sure that your rewards are actually covering the fee you are paying for them. If not, be sure to switch to a no-fee credit card right away.
For some people, credit cards are a necessity. But just because you have a card does not mean you need to pour money into the credit card company’s pockets. Be sure watch out for sneaky introductory “low-rates” that could jump and get you in a lot of trouble. And always read everything so you fully understand what you are paying.