Debt Consolidation and Credit Card Counseling

Credit card companies have ulterior motives with those low-interest cards

Credit cards have rapidly become a tool that most people cannot do without. Shopping on the Internet requires a credit card, and most people would rather carry one than carry cash. Given that pretty much everyone needs a card these days, issuing banks have become quite aggressive in handing them out and in trying to get your business. In fact, card-issuing banks will send out some six billion credit card applications this year, which is roughly twenty for every man, woman, and child in the United States.

These deals are often quite competitive, offering interest rates as low as zero percent, no annual fees and great terms for transferring balances from your existing account to the new one that the bank hopes that you will accept. But no one can make money at zero percent interest and with no annual fee. How do the banks hope to profit from these great deals?

The answer is simple - they are waiting for you to screw up. That’s right; they want you to make a mistake. Those deals are great ones, but only on the surface. If you read the fine print in the cardmember agreement, you will find a number of things that can go wrong if you fail to heed the agreement, and all of those things will cost you money. In fact, they will cost you a lot of money if you aren’t careful.

The fine print of the agreement points out a number of ways that the bank can profit from these seemingly profitless deals that they are offering you:

• Late payments on your account - This is the key to most of the profits. You are permitted these great, low interest terms only if you pay on time. If you pay late, and “late” means as little as an hour after the payment is due, the low interest rate is gone. In fact, paying late will usually trigger what the terms will call the “default rate”, an interest rate that can be as high as 30% per year. Once you have paid late, you cannot get that low rate back. Period.
• Late payments to anyone - That’s right, anyone. If you pay your credit card bill on time and pay the cable TV bill late, you could find your zero percent interest rate replaced by one at 30%. This is called the “universal default clause” and most credit card companies have it buried in their cardmember agreement. In order to keep the low rate, you have to pay everyone on time.
• Change the terms - Been promised a low, fixed rate for “life”? Forget that. Card issuing banks can turn fixed rate accounts into variable rate accounts, no-annual fee accounts into ones with an annual fee and low interest rate cards into high interest rate cards simply by notifying you that they intend to do so. The only requirement is that they provide you with fifteen days’ written notice. That’s it. Your terms exist only by the grace of the company that gave them to you.

The credit card business is indeed a profitable one.

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