There are many examples in countless industries where the misuse or abuse of a product can indirectly generate substantial profits for manufacturing companies. These profits run counter to what could be ethically justified, and that is why they generate controversy.
Whether they accept it publicly or not, cigarette manufacturers benefit from the addiction of their consumers, just as banks benefit from the addiction of their cardholders who, either out of ignorance or ignorance, have gotten out of control when using their credit cards.
In this article we will tell you what are the most common mistakes that US people make when handling our credit cards in order to avoid falling into them and suffer their consequences.
How are credit card revenues generated for banks?
To give a little context, it is important to understand how banks do business with credit cards. As we can suppose, banks profit mainly from the so-called “financial margin”, that is, from the difference between what the bank pays the saver for having his money invested and what it charges the cardholders who have it through their credit card. The business is very attractive because if we suppose that the bank pays 3% a year for the money it captures and charges an average of 45% a year for what it lends, we can see that the margin is enormous.
In addition to the financial margin, banks have commission income that can represent up to 50% of their total income. In advanced economies, credit card fees are disappearing, which is why US is a paradise for foreign banks seeking oxygen to strengthen their global operations. Click here to know more about the best American Express credit cards.
With this in mind, it is easy to deduce that there are certain consumer behaviors from which banks benefit considerably and which are caused by a lack of financial education. Here are 5 basic tips for using credit cards without putting your financial and emotional stability at risk:
- Don’t use your card to pay in installments unless it is months without interest and your purchase has a life time longer than the months it will take you to pay them – While card rates in US are at levels of 45% on average, it is clearly a mistake to finance purchases with this instrument. According to CNBV figures, 22% of card users in US pay the full amount, so 78% would be paying interest on purchases such as super, gasoline and other expenses, simply because they don’t know how credit cards work and the applicable rates.
- Avoid the temptation to have more than 2 cards – Manage a maximum of 2 credit cards, one for daily expenses such as the super, gasoline, telephone and pay the full balance at the end of the month. Use another card where you have your plans for months without interest. Remember that the greater the number of plastics, the greater the probability that a person will lose control and end up paying less than the total of their debt. This includes abusing much-loved interest-free months.
- Never stop paying your card – Forgetting the payment date not only has consequences that are reflected in late payment fees and late interest, also it is very likely that the bank assigns the user a higher rate because it considers it riskier.
- Forget about cash withdrawals – Many users think it’s the same to withdraw money from a credit card as it is from a debit card and forget that they will have to pay a commission for withdrawals ranging from 5 to 10% of the amount drawn and then pay daily interest at a rate that is regularly even higher than the average rate of the card. why is a higher rate charged, well, because banks consider customers who are willing to get the money despite the irrational financial cost to be riskier.
- To pay for benefits that are not justified or that are not used is perhaps one of the most frequent errors that US people make due to inertia. Considering that there are credit cards that do not charge an annuity, it is important that users do an exercise to determine if they are getting tangible benefits from paying the annuity.
It’s time to take a more leading role
This article is not intended to demonize banks or their business. This would be as illogical as blaming car manufacturers for accidents. They are doing their job and have responsibilities to their shareholders. The question here is whether we consumers are doing our own, seeking to educate ourselves financially, choosing products with better conditions and breaking the habits that impact us financially.
What do you think?
