Credit Cards

Credit Card Reform

In a slumping economy consumers are feeling the bite in their pocketbooks and many are choosing to pull out the credit cards instead of walking away from that must-have item on sale.  Credit card companies could not be happier with this type of buying behavior.  How many consumers have watched the register nervously waiting to see the word ‘approved’ after their credit card has been swiped?  Again this is buying behavior that is making credit card companies rich and this behavior is throwing many people into monstrous debt that they will struggle for years to pay back.  

Is now the time for the government to step in and force the companies to reform their practices of credit card use?  Now the companies can hike the interest rates on credit cards whenever they choose and they raise the interest rates into the double digits if a customer is late by 30 days.  The companies actually allow charges to go though even when the purchase will push a customer over their credit limit. Once over the credit limit, companies can charge penalties in addition to the interest rate.  

Is allowing the government to dictate how the private business should run a good idea?  It is agreed that credit cards are hurting a lot of people out there.  Or is it people hurting themselves by their own behavior?  Either way there is crisis and it is hard to take when a company is setting their customers up to fail in an economic situation that is already putting pressure on consumers everywhere.  It may be over-stepping boundaries if the government starts dictating what interest rates should be and when they should go up.  However credit card companies could issue a warning, at the time of sale, if a customer is about to exceed their credit limit.  This will give the customer information they need and a chance to reconsider their decisions.  Customers do need help but do they need help that comes in the form of a directive from the government?

Dangers of Credit Cards

With a struggling economic downturn in most homes turning to the credit cards might seem like a natural thing to do when one is in a cash crunch.  It is better to pay the bills on time or get groceries for the week then to go without or have the utilities turned off.  A general rule of thumb is that credit cards should only be used in emergencies.  The unexpected is bound to happen and there are genuine emergencies that occur.  The dog gets sick or the roof starts to leak, thus urgency must be tempered with common sense.  

Credit cards are dangerous simply because of the perception that is created just by using credit cards to pay for a transaction.  Consumers do not perceive credit cards as using actual money.  They represent future monies to be paid at a later date.  What is even more appealing is that not all the money has to be repaid by the next month.  If credit cards are used on an emergency basis then they can be a wonderful boon but if credit cards are used to get by on a month to month basis disaster awaits.

The companies are structured to bank on the fact that the consumers cannot totally repay the monies that were charged the month before.  An interest rate is charged against the money that was essentially borrowed.  So the monthly payment that is sent in by the consumer only pays for part of the balance.  Most of the payment is paying off the interest that was charged against the principal balance.  If the interest rate is high, then very little is paid to the principle and it takes much longer to pay off the bill.  

In a struggling economy, late payments are a frequent occurrence because consumers are being forced to choose what gets paid and what does not.  When a late payment occurs, late fees are charged on top of the interest already being charged.  Credit cards should be utilized very carefully because they can very quickly make a bad situation worse. 

How to Choose the Credit Card That Suits You

Almost everyone has at least one credit card and in the sea of many credit cards out there, you should carefully choose the card that is right for you.  Many people choose their credit cards through affiliations with private clubs like Sam’s Club or worker unions.  Although their introductory offers are attractive, these credit cards may not be the best cards for every individual.  

First, know what your spending habits are and what your normal trend is when it comes to paying the bills.  If you are a person that intends to pay in full every month, you might look cards that offer longer grace periods and do not offer an APR.  If you believe that you will carry a balance month to month or use your card for cash advances, then you need to find a card that offers a low APR on card balances and cash advances.  APRs are the annual percentage rates that are charged the balance of the account.  Try looking for credit cards that offer a fixed APR rather than a variable one.  It does not mean that a fixed interest rate will never go up but the APR will not change as often as a credit card with a variable one.

An important concept to understand about all credit cards is their fees and how the company calculates their fees.  All credit cards have fees and knowing when and how you will incur them should help you make your decision about the card that suits your needs and budget.  Some examples of some of traditional fees are cash advanced fees, balance transfer fees, over-limit fees, late payment fees and even set-up fees.  By the way, a set up fee is fee charged to initially set-up the new account.  If these fees seem outrageous to you then find a card that does not have these fees attached to them.  Especially in today’s economy, you should shop for your credit cards as carefully as you would for your next new car.

The Extras Offered by Credit Card Companies

Many people have credit cards but many are not aware of the extras being offered by the companies in order to keep their existing customers happy and attract new ones.  The companies do advertise their extras but the information often get lost in mix of other paperwork and advertisements on their customer’s desktops.  The credit card companies are getting the most out of their customers’ spending habits so the customers should get the most that they can out of their credit cards.

Of course, in order to take advantage of these offers the customer needs to pay with their credit card.  Many credit cards offer a reward system that allows the consumer to accumulate points.  The points are earned by the purchases made each month.  Once a predetermined amount of points are earned customers can use them to get items by redeeming their points.  Some of the items are collectables only being offered to the cardholders.  Many stores offer special discounts on items exclusively for cardholders.

Some of the reward programs offered by the credit card companies allow customers to redeem their points for discounted flights at certain airlines and discounts on rental vehicles.  They often offer discounted prices for concerts and shows to cardholders.  Some cards are also offering life experiences if their cardholders can rack enough points. Life experiences are anything from skydiving, wine tasting tours, and being a passenger in a race car during an actual race.  

The rewards for being a cardholder can be pretty impressive but when you think of how much money must be charged to get the necessary points, it might not be worth it to the average customer.  After taking the fees and interest that is charged over time, cash or a debit card just might be the best deal.