How many Americans would be able to continue their current lifestyle if they no longer had access to a credit card? At a guess, not many. Credit cards have become an integral part of everyday life for the majority with cards to suit everyone including credit cards for high earners, credit cards for frequent travelers and even credit cards for bad credit scores.
There is a lot of competition in the market to attract business and lenders often offer a range of extras to try and get new customers.
While credit cards are primarily designed to pay for purchases, lenders also provide the facility for card holders to withdraw money from cash machines.
This is undoubtedly a useful option but should only ever be viewed as an emergency resource due to the amount of charges that are added on.
Typically, credit card providers charge customers anything between 3-5% of the total amount of cash that is withdrawn in charges. This is in addition to the interest, which will be added as usual.
Using credit cards to provide spending money on a vacation outside the US is another avenue which has become increasingly popular, with many Americans preferring to use their card for both security reasons and also to avoid having to exchange large amounts of cash.
However, this can also be a false economy.
While it is undeniably much easier to replace a credit card that gets stolen overseas than claim for cash, using a card to pay for goods in a foreign currency can be far more expensive than it first appears.
Credit card firms add a transaction charge, typically in the region of 3% for any foreign purchases or for withdrawal of foreign currency from your card. Even worse, the exchange rates used by most lenders is one of the worst in the market, making the transaction even more costly.
For consumers who have a variety of expenditure on their credit card bill, the cost of which is being spread over several months, credit card firms have another way of extracting more cash.
Rather than pay off the purchases in the order in which they occurred, the vast majority of providers have terms and conditions that specify that the transactions with the lowest level of interest will be paid off first, leaving the costlier items outstanding and accruing more interest, sending the balance higher.
Many customers may also be attracted by the benefit of a low minimum monthly repayment but this is another ploy designed to cost consumers more money. By spreading the repayments out for longer, more interest will rack up, earning the lender a greater return in the long term.
Some credit cards appear to offer genuine benefits for their card holders, such as free air miles, discounts in stores or free dinners out.
However, these types of cards usually have an annual fee and for most people, the amount they pay to have the card far outweighs the monetary value of any rewards they earn.
Customers with a low credit score may find it difficult to get approval so finding a firm that agrees to issue credit cards for bad credit can seem like a real benefit. However, firms operate a sneaky policy of issuing multiple accounts when upping an accountholder’s limit rather than just upgrading their existing account.
With multiple accounts, it is far more likely that deadlines will be missed, generating more fees for the lender to make from their most vulnerable customers.