Credit Card - Treats and Tricks
Trick or treat? We have all heard about ingenious offers given by credit card companies offering zero annual fees to free hotel room stays to free gifts and even cash advance. It looks as if these companies are paying you to use their Visa Credit Card or Mastercard. What’s the catch, if there’s one? How does the credit card company make tonnes of money annually with all these freebies?
A Small Gift Is A Small Price To Pay
Credit card companies are smart. They want you to use their card because even if you pay in full at the end of every month, they still get their commission from merchants wherever you use the card. So, they are never at the losing end even if they offer you a free night’s stay in a nice hotel. Recently, one credit card company offered a free night’s stay in Genting just for signing up. It is common knowledge that this free night stay only costs about RM50 to RM80 thereabouts. Assuming you use the credit card for one year averaging RM500 per month and assuming the merchant commission is 2%, the credit card company makes RM120 gross on commissions alone just because you use the card.
Hook You Long Term
Not only do they want you to use their card, they want you on the long term. Incentives like interest free payments for expensive purchases are but one of the tactics employed to make credit card holders use their card for at least 12 months or more. Some interest free payments even extend up to 36 months. The longer you use the card, the more likely you are to spend and the higher their chances of racking in the merchant commission. If I am not wrong, the credit card company also earns commission from the merchants who participate in interest free payments.
Cash Advance Lure
If you need to take cash advance through credit cards, beware. Make sure you are able to repay on time or the interest charges might balloon out of control. It is always flattering to receive pre-approved cheques from credit card companies telling you what an esteemed customer you are and how credit worthy you are by the amount pre-approved to you. Then they will say that you can now enjoy the holiday you have always been waiting for or buy the item you have always craved for with this cash advance. Look through the fine prints for cash advance charges and repayment terms. The charges are usually higher than a personal loan. If you really must, then do a proper credit card comparison.
Annual Fee Waivers
Provided you spend X amount of dollars every month or annually. Of course, some terms are relatively easy to achieve and are low risk eg. use the card 12 times a year for any amount charged. The riskier ones are those which stipulates a minimum expenditure per month. There are some months when one might be a bit lean financially and having the added burden of minimum expenditure creates unnecessary stress and increases the chances of defaults in payment.
Balance Transfers
Isn’t balance transfers suppose to give you breathing room? That is if you are disciplined enough not to incur further unnecessary expenses. Remember that if you default in any of the minimum payment as far as balance transferred is concerned, chances are you will be slapped with the maximum interest fee chargeable and in that connection, you are back to square one. Balance transfers might also contain some administrative fees. See if it is really worthwhile to transfer your outstanding balance.
The only way to really benefit is to ensure a disciplined spending habit and to pay in full every month. When you are able to do that, then credit cards can be a real treat itself where the perks like free gifts, rewards redemption, insurance for purchases etc are indeed free.
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2 Responses to “Credit Card - Treats and Tricks”
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what are legal coencicoences if i don pay my outstanding of my credit cards…is there any police case by the company
gautam : If you don’t pay, the card issuer will sue you for the amount outstanding plus associated charges and fees. It is a civil case and nothing to do with the police / state.