The credit card business

Credit Card Issuers always comes up with discounts, rebates, freebies and possibly zero fees to attract and maintain its card holders. How do they sustain their business and continue to market their cards so aggressively? If you pay in full your outstanding credit card debt monthly, all these freebies would mean that the credit card issuer is paying you to use their credit card! How then does the credit card company still manage to earn a lot of money through the credit card market with all these freebies and having to deal with credit card defaulters at the same time ?

What’s A Small Price To Pay

Firstly, credit card companies want you to sign up with them. A gift is but a small investment on their part and by buying in bulk, the gift becomes cheaper at cost. Once you are a credit card holder, chances are you will start using the card and that is when they get their commission from merchants. If you fail to pay in full, you pay penalty, fees and interests. Before long, the small investment has been paid for and you start earning money for them through spending.

Long Term Commitment

The longer you stay with them, the more you are likely to spend and the more they will earn. To encourage their credit card holders to stay longer, they come up with incentives like loyalty bonuses and installment interest free payments for expensive purchases.

Need Quick Cash

This is one of the biggest killers! Cash advance earns the credit card company advance cash fees. If you fail to pay the stipulated amount monthly, you are heading for a shock with the credit card interest charges payable. Read the fine prints for cash advance charges and repayment terms. The charges are usually higher than a personal loan.

Annual Fee Waivers

Annual fee waivers do not significantly impact the credit card issuer’s profits. Some annual fee waiver comes with conditions eg. provided you spend X amount of dollars every month or annually. Invariably, they earn back what they lost through merchant commission.

Give Us Your Outstanding Credit Card Debts

Why would credit card companies want to deal with your outstanding credit card debt from another credit card issuer? Well, firstly, if you are disciplined enough, you wouldn’t have incurred credit card debts which attract high interests payable. By balance transfers, you pay the credit card issuer an administrative charge. If you are still not able to keep up with the new terms of payment stipulated by the new credit card issuer, chances are you will be slapped with the maximum interest fee chargeable. Then you are back in square one and what the previous credit card issuer lost is now the new credit card issuer’s gain.

So, do you see how lucrative the credit card business really is? And these are just the tip of the iceberg.

How to get out of credit card debts

Credit Card Debts are reaching a worldwide high as a result of the rising prices and inflation resulting in many credit card holders being unable to cope with the outstanding credit card amounts. As credit cards offer the card holder a temporary credit period to pay for their purchases, it is not surprising to find many credit card holders being tempted to spend more than they could afford payment.

With high compounded interests in the form of APRs on the outstanding balances plus a host of fees and penalty payable, what may seem to be a small amount outstanding can snowball to an unmanageable credit card debt nightmare in just a couple of months. The following are some tips which would be useful to you to get out of credit card debts.

Communicate

If you realise that your credit card debts are spiraling out of control, you should quickly call the credit card company or pay them a visit. Be honest and tell them about your current financial situation. Explore with them the possibility of an extended period to pay – for example, request the lowering of the interest rate of your credit card or restructure the credit card debt. Credit card companies are only after your money and as long as you are willing to pay and they don’t really lose out, some might be flexible enough to accommodate your wishes.

Halt

Stop using your credit cards. Reassess your spending habits and refrain from incurring further credit card charges. Further spending would compound to the interest charges if you fail to pay in full the previous month’s outstanding credit card debt. Be thrifty and just spend on necessities, not luxuries. Work our a new monthly budget based on your income and liabilities and reduce unnecessary expenses. You got no other way other than this.

Cover It

Put in as much money as possible to pay your credit card debts. If you have many cards, pay the card with the biggest amount outstanding and try to extinguish the debt there first. Make it your goal to pay in full each month. Try not to settle for paying the minimum amount payable unless you are in an emergency. If you skip your credit card payments, you are asking for trouble. Your credit card profile might even be blacklisted!

Consolidate

Stick to one credit card or two, if you must. Having too many credit cards increases the chances of overspending. The fewer credit cards you have, the easier for you to monitor your expenses and payment. Consolidating your credit cards allow you to monitor your due dates with ease and lessen the risk of your missing a payment. If you are still credit worthy, apply for a personal loan to pay off all your existing credit card debts. The interest rates for personal loans usually lesser than the prevailing credit card interest rates. That should help you to ease your outstanding debt on your credit cards.

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