In the world of finance, almost everything comes at a price. Although you have to play the credit game to improve your score and open up more financial opportunities, it’s important to stay informed on what lenders do with your dollars. Let’s take a look at how banks make money from credit cards, so you can understand what’s behind every swipe.
Interest Fees
Perhaps the largest source of income for banks is credit card interest. The longer you take to pay off your balance, the more your bank will accumulate in interest income. To avoid interest charges on your purchases, pay off your credit card debt in full at the end of each month. And, if you’re confident that you’ll always have enough money in your account, you can set up automatic payments so you don’t have to physically take action to pay your balance.
Annual Membership Fees
Before you apply for a credit card, check to see if there are any membership fees. Some issuers charge them annually while some don’t charge them at all, but those that do might take the money from your account automatically during the next renewal period. A membership fee shouldn’t necessarily steer you away from a certain card, because some cards come with annual fees but have respectable interest rates and other beneficial incentives. However, it’s always important to understand every charge thrown your way.
Balance Transfer Fees
Consolidating your outstanding balances onto one credit card can be a great solution for relieving debt, but you still have to read the agreement that comes with the card you transfer your balances to. Some cards offer 0% interest for a certain amount of months to provide you with an opportunity to pay off your debt without collecting any more interest. However, the amount of interest payable after that preliminary period is going straight to your bank no matter how high the rate is.
Interchange Fees
Many locally owned businesses require you to spend a certain amount if you’re paying with a credit card, because virtually every credit card comes with an interchange fee. Interchange fees are expenses placed on merchants or venders every time you pay with a credit card. This fee is almost always less than five percent of your purchase price, and the percentage goes to both the credit card distributor and the bank managing the associated account.
Late Fees
If you miss a payment on your credit card, your bank has the right to charge a late fee. Check the terms of your credit card agreement to understand your bank’s policies on late fees and the amount charged. Sometimes, your bank may accidentally charge a late fee if your payment didn’t process in time, but you usually can call your provider and explain the situation to clear up your incorrect expense.
Expert Debt Advice
When used responsibly, credit cards are a great financial tool to alleviate debt or establish a responsible borrowing pattern. However, some cards come with hidden fees that not every borrower is aware of. If you are in over your head with credit card, cash advances, or payday loan debt give us a call. Our debt consolidation programs have helped thousands of individuals get their financial health back. For more information, call 1-877-590-1847.
