They may be marketed as convenient, flash, and “rewarding”, but in reality, the credit card trap is one you don’t want to fall into unless you can pay back everything you owe, every month, on time, and without bringing other accounts overdrawn. Which of us, hand on heart, can promise this, especially when there are temptations everywhere, from fashion to food, travel, gadgets, and a million and one subscription based services?
Forbes contributor Bill Hardekopf revealed last week that nearly one third of credit card users don’t redeem the rewards they earn by splashing out. A report from Bankrate.com revealed that only 38% of card holders had used credit card rewards in the last six months.
Music to the ears of credit card companies, of course, because unclaimed rewards translate into profit.
Combined, credit card fees plus interest charges exceeded $163 billion in 2016. Hardekopf cites R K Hammer who suggest that fee income rose 6% year on year in 2016 and is expected to jump 6.5% in 2017.
Interest income made up $63 billion in 2016, with interchange income generating $42.4 billion, whilst the dreaded cash advance fees brought in $42.4 billion for credit card companies.
Annual fees are worth $12.5 billion to issuers, and penalty fees $12 billion. Enhancement income, at $6.3 billion, accounts for the rest.
In a perfect world, of course, like the worlds portrayed in glamorous advertising shoots and “flexible friend” commercials, fees would total £0.
In the real world, credit cards are more popular than ever, with debt levels in the US hitting $1 trillion last year – the highest amount since January 2009. And what’s more, the debt is rated highly – there is no getting away from paying credit card fees, of that you can be sure.
The Money Cloud View
If you have ever withdrawn money from an ATM machine using a credit card, then the interest on that balance will be charged separately to other purchases, made via POS or online for example – and the overall interest will skyrocket.
If you have ever done so abroad, not only will you be charged high interest on the cash balance but you will also incur international fees and endure pitiful exchange rates.
Always make sure you avoid a scenario where you are using your credit card to withdraw money abroad. Using the Money Cloud’s comparison engine, you can plan ahead, before you travel, and collect all the travel money you need well in advance. When you arrive at your destination, and see your credit card statement at the end of the month, you will be very glad you have!