3 Things You Didn’t Know About Credit Cards
Did you know that credit cards are a fairly new invention? In the recent past, people always saved up for the things that they wanted and paid for these items with cash that they withdrew from their bank account. Today, people wipe their plastic for all sorts of purchases that our grandparents wouldn’t have thought of, like fast food meals or gasoline purchases. There are many things that you probably didn’t know about credit cards that the credit card companies would rather keep under wraps, but knowing the truth about these financial products will help you make better decisions about your own finances.
1 – Interest Rates Have No Maximum
Every card holder’s agreement for every credit card marketed contains a clause that states that the credit card issuer can change the interest rate for the credit card at any time for any reason that they consider valid. Although the new credit card laws issued state that these companies must now give a certain amount of notice before an interest rate hike and give the borrower the option to pay off the balance under the original terms, the new laws do not say anything about a limit to the interest rate that is charged. Many of larger banking institutions are headquartered in states that have no usury rate, so they can charge their customers whatever interest rate they choose without any fear of legal repercussions.
2 – Paying Off A Credit Card Rarely Happens
The individuals that are using credit wisely attempt to pay off the balance of their credit card every month, but the vast majority of credit card users carry a balance on their credit cards from month to month and many of these individuals only pay the minimum due each month. What many people do not realize is that the typical minimum payment only covers the fees charged for that month and 1% of the principal balance. This means that it could take someone decades to pay off a credit card and that is only if they do not use the credit card again while they are paying it off.
3 – Rewards Programs Are Costing You
Many people sign up for credit cards because of the perks and rewards that they will get from using the credit card, but many do not realize that these perks are not free. You are paying for these rewards through the interest payments, finance charges, and membership fees associated with the credit card account. An analysis of one popular credit card rewards program showed that the credit card holder would have to spend at least $5,000 annually to break even with the membership fee for being in the rewards program.
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