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Credit Cards - The Basics
How Lenders Operate - And How They'll Make a Tidy Fortune from
the Unknowing
Credit card companies might seem like immensely clever, money
making enterprises that exploit every loophole to maximize the
interest payments - and profits - they are taking from you every
month. Nothing, however, could be further from the truth. These
financial institutions operate on simple principles and exploit
the fact that consumer demand and their customer's naivety will
keep business turning endlessly over.
It doesn't have to be that way, however. Know what to look out
for and you can cut your overheads and stop these businesses from
making a dime more than they have to.
Lenders exploit the fact that people use one card for many
purchases. For example, if you use a balance transfer special
card rate for spending in the supermarket or mall, they
deliberately structure repayments in such a way that you'll pay a
fortune on the entire balance. To properly play your plastic you
need to deploy an army of cards as weapons in the war against
consumer debt. Using the right tool for the right job will smash
your credit card costs.
If you already have hefty credit card bills, transferring the
balance will usually substantially cut your interest costs. What
this means is that your new provider pays off the debts on your
current credit or store cards for you.
You then owe the money at a (hopefully) lower interest rate
for a fixed - or sometimes indefinite - period of time. The key
to making this work is by not using this card for spending. What
this can mean is that credit card providers will then revert the
interest rate for the WHOLE of the balance up to a higher
rate.
Consumers who spend on a card, but don't clear the debt each
month should focus on minimizing the interest cost. Search the
market for the lowest purchase rate available, but also keep in
mind the day when you'll clear the balance in full (e.g. Bonus
time; when your bonds mature, etc.) and don't let the balance
spiral beyond your means.
If you pay off your balance in full each month then the
interest rate is irrelevant. Focus instead on the gains available
from using the card for spending. The key to this is the reward
scheme offered. Many credit cards offer points schemes or even
cash-back. There's a huge array of different schemes, but by
picking the right one you can benefit substantially. It's often
simpler just to go for a Cashback card, where the benefits are
more apparent, but sometimes reward schemes offer great
inducements - particularly when they offer double points to new
customers, and so on.
If you're one of those lucky people to be debt free you can
take REVENGE on the credit card companies and make free dollars
from their products. The schemes are simple to manipulate. If
they lend you money at 0%, you can bank the cash and earn
interest on it. There are a variety of mechanisms that allow you
to get money into your savings account quickly and easily. Once
its in, just let it sit there for the duration of the interest
free period and pay it back in full when it's at an end.
Substantial amounts can be made from this, but it's a strategy
that should only ever be used by consumers with a good credit
history, no debts and are prepared to make a little effort.
Store cards should be avoided under almost all circumstances.
They charge the highest rates of interest, and by being offered
at a department store counter are an easy lure into a mine of
consumer debt. You should never use them to borrow money on, and
if they offer any perks and benefits make sure they work for you.
For instance, some offer a 10 per cent discount on first
purchases. If they do so - make sure you take them up on it when
buying something big, thus maximizing your saving. As a rule,
however, avoid these expensive options like a plague. Stick to a
credit card that charges low interest on purchases and you'll be
fine.
Some people, however, simply can't get new credit cards.
Sometimes there are quite valid reasons for this, but on other
occasions it can be due to incorrect information held on your
credit reference file. Apply to a credit reference company, like
Experian, and check that there are no erroneous black marks on
your record. Beyond that, there are a variety of simple
strategies you can apply that will boost your credit score and
help enable you to get the best credit cards for your needs. In a
position of strength, you can then make credit cards work for
you.
Ethan Hunter is the author of many credit card related
articles. If you are looking for help with Credit Cards or any
type of credit issue please visit us at http://www.creditcardunlimited.com
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