The Credit Card Business
Credit Card Issuers always comes up with discounts, rebates, freebies and possibly zero fees to attract and maintain its card holders. How do they sustain their business and continue to market their cards so aggressively? If you pay in full your outstanding credit card debt monthly, all these freebies would mean that the credit card issuer is paying you to use their credit card! How then does the credit card company still manage to earn a lot of money through the credit card market with all these freebies and having to deal with credit card defaulters at the same time ?
What’s A Small Price To Pay
Firstly, credit card companies want you to sign up with them. A gift is but a small investment on their part and by buying in bulk, the gift becomes cheaper at cost. Once you are a credit card holder, chances are you will start using the card and that is when they get their commission from merchants. If you fail to pay in full, you pay penalty, fees and interests. Before long, the small investment has been paid for and you start earning money for them through spending.
Long Term Commitment
The longer you stay with them, the more you are likely to spend and the more they will earn. To encourage their credit card holders to stay longer, they come up with incentives like loyalty bonuses and installment interest free payments for expensive purchases.
Need Quick Cash
This is one of the biggest killers! Cash advance earns the credit card company advance cash fees. If you fail to pay the stipulated amount monthly, you are heading for a shock with the credit card interest charges payable. Read the fine prints for cash advance charges and repayment terms. The charges are usually higher than a personal loan.
Annual Fee Waivers
Annual fee waivers do not significantly impact the credit card issuer’s profits. Some annual fee waiver comes with conditions eg. provided you spend X amount of dollars every month or annually. Invariably, they earn back what they lost through merchant commission.
Give Us Your Outstanding Credit Card Debts
Why would credit card companies want to deal with your outstanding credit card debt from another credit card issuer? Well, firstly, if you are disciplined enough, you wouldn’t have incurred credit card debts which attract high interests payable. By balance transfers, you pay the credit card issuer an administrative charge. If you are still not able to keep up with the new terms of payment stipulated by the new credit card issuer, chances are you will be slapped with the maximum interest fee chargeable. Then you are back in square one and what the previous credit card issuer lost is now the new credit card issuer’s gain.
So, do you see how lucrative the credit card business really is? And these are just the tip of the iceberg.