According to the U.S. Census Bureau, 70% of Americans have credit cards. Credit cards have become essential in over half of American homes today, but what are the hidden cost of credits cards nobody talks about? Today, I’m going to uncover secrets the credit card companies don’t want you to know. Read below to find out what the true cost of credit cards are.
Paying off the Minimum will still add to your deficient (debt)
One trick the credit card company does is suggest that you pay off the minimum. Credit cards only make money from interest and their subscription fees. So of course they only want you to pay off the minimum amount. If you only pay off the minion it still adds to your deficient also known as debt. You have to pay interest on that, and then it becomes a snowball effect, where you are just trying to keep up with the minimum payments and suddenly they get larger and larger. If you can’t do the entire thing, pay more than the recommended amount / as much as you possibly can.
The other problem is most credit card companies will give you a high credit limit available. Be weary if a credit card company gives you an extremely high credit card limit.
Pay Close Attention to the the Interest Rate (APR)
The truth is that credit cards make a majority of their revenue from interest rates and only a small amount on the different fees. In my opinion the more debt you have the more the credit card companies like you. It’s best to pay your credit card in full every month. Although it’s easier said than done, so I wrote an article about how to pay off your credit card debt quickly.
The average percentage rate (APR) also known as interest rate for a credit card is 19% for new credit card users and often drops to 15% for existing credit card accounts.
5 Different Credit Card Fees Nobody Talks About
There are so many different credit card fees that you may not be aware of. Below are 5 common fees that come with a credit card.
- Subscription Fee – The most common one is the subscription fee, some credit cards waive the subscription fee for the first year, but then they hit you with a credit card fee after 1 year.
- Balance Transfer Fee – If you are trying to move your credit card debt from one credit card to another to consolidate your debt, then there will be a fee associated with it.
- International / foreign transaction fees – If you are traveling abroad it’s important to know if there are any international or foreign transaction fees while you are traveling. This means on every purchase abroad you have to pay an additional amount because you are in a foreign country.
- Cash Advance Fee – If you are looking to take a cash advance on your credit card, there is also a fee associated with that.
- Late fees / no activity fee – Another fee that is very common is the late fees or no activity fee. Every credit card is different. On average these late fees can be anywhere between $20-$40
It’s important to note that every credit card has different fee amounts for each of the points above. These fees are some of the most hidden cost of credit cards that aren’t commonly discussed.
Surprisingly Most Credit Card Points Don’t Get Used
Credit card points are so alluring it’s scary. I would know, I’ve signed up for tons of credit cards over the years. Especially the ones that are 100k points when you sign up. While that’s tempting keep in mind, they aren’t giving you 100k points when you sign up you still have to spend X amount of dollars to get those points.
Plus today, credit card companies are getting smarter because people like the points guy spill all their secrets. Now most credit card companies have points set aside for when you renew the card. So you get 80k when you spend 5k in 3 months and then another 20k when you renew it a year later. Well the problem is most of these credit cards also have an annual subscription fee, so you are paying for an Amex platinum $550 a year just to have the card.
The good news is, as long as the credit card is active most points don’t expire. But be wary if you transfer points to an airline, or hotel, then they very well could expire.
In conclusion, use your credit card points if you have them, don’t let them go unused.
In short, there are a few hidden costs of credit cards that you should be aware of before you apply. Paying off the minimum of the credit card still adds to your debt. My best advice is to pull it off in full if possible. When choosing a credit card pay close attention to the APY. There are 5 different common fees that people often forget about. Finally don’t forget to use your credit card points. The key is that credit cards can work for you and actually pay you money, however you must pay off the balance every month to take advantage of these points.