You all have heard those commercials from Capital One? What’s in your wallet? They even have famous actors like Samuel L Jackson and your favorite sports athlete asking you what ‘s in your wallet.
Well, I am going to tell you that those guys on those commercials have a ton of money in their wallets to get you to use the credit cards from Capital One. Their wallets are fat from getting pay to fool you into getting into debt. I can tell you what is not in YOUR wallet. Money? All you have in YOUR wallet by using this evil invention are debt and getting deeper and deeper into debt and forget about reaching financial independence.
Let me break down for you how credit card companies make a killing on getting people to get their debt high.
Interest Rates
Yes interests rates will get you in trouble quickly. Most credit cards carry an interest rate that hovers around 20-25% annual interest rate. I have even seen 30% interest rates on some Mastercard and Visa cards. This is where they make most of their money. Oh yes, there are other ways they also make money. I will get to that later on this post.
Okay, let’s use an example. Say your credit card balance is $10,000 and your interest rate is 25%. If you don’t pay the balance and just send the minimum balance (often low payment like $200). Then simple math right.
$10,000
0.25 =
$2,500
Yes, that is right. You are giving them $2,500 a year for carrying a $10,000 balance. That is 1/4, one quarter of the balance. Image if you carry a $20,000 balance? Yes, definitely what’s in your wallet is not your money. It is the money you are giving to the credit card companies.
Stock market or any other investment
Think about this for a minute. The stock market average return is around 10%. $10,000 you will get $1,000 return in one year right. Now compare what the credit card companies are getting from your silliness of spending money that you do not have. $10,000 x 25% = $2,500 compare to $1,000 from the stock market. Yeah, that is a great investment by the credit card companies. No way they can get 25% from the stock market. They make more money from getting you to carry a debt and making them rich or making the stockholders of these credit card companies rich or I will be more sinical, making the actors, who are convincing you to carry a debt, richer.
The minimum payment trap
When you get your credit card statement you often see a minimum payment there which is like 1% of what you owe. For example, you owe $10,000 and the minimum payment is like $200. Most people think that if they send the minimum payment then they are all good. Wrong. The reason they put that minimum payment amount so low is to keep you indebted and enslaved to them, so you always carry a balance and continue to pay interest rates.
Never, never send the minimum payment. Heck you should never carry a balance to begin with. If you cannot afford to pay it (whatever you are using your credit card to pay that month) at the end of the month then you cannot afford it.
Here is an example of a credit card statement. You should see only $0 in Interest and Fees. This tells you that you are paying your balance in full every month and the end of the credit card cycle. Never, never send the minimum. If you cannot pay the credit card in full, then send the maximum you can. This is how they get you trapped and you become very profitable for them. If you pay the credit card in full, you are not profitable for them. And on the plus side, your credit score goes up.
Rewards gimmick
Sorry to say it to you but there is nothing free. The reward gimmick credit card companies use are nothing more than another way to get you to use their credit card and to get you to, hopefully, get comfortable and start to overspend and then carry a balance.
Guess who is paying the rewards? Yes, you. No it is not the companies, stores or merchants you are using your credit cards at. The restaurant or that retail store are charged by the credit card companies for using their network. For example, if I own a business and I let customers pay me with their Visa, Mastercard or any other card, then the credit card companies charge me, my business, 2-3% for the service. Well guess what I am going to do. I will pass that cost on to you the consumer. So you end up paying for it. I call it a credit card processing fee or service fee or whatever. The point here is that you end up paying it. Not the credit card company and not the business.
This is why some gasoline stations usually just have the price of gasoline displayed on their sign the price of cash payment. But when you use the credit card at the pump it is a higher price. Interestingly enough, most people don’t know that gasoline stations have two prices, one for cash and one for credit card. So if you pay in cash it is cheaper. But uninformed consumers, or those don’t come to read at The Economy Chief, often end up paying more.
So back to the rewards. That reward is your own money that you pay when you used the credit card for shopping or dining.
Isn’t this great for credit cards. They win either way.
Yes, they do offer some things that make it worth it to use them. They protect you if someone steals your credit card, fraud an all those things. Some cards even cover you for car insurance if you rent a car. American Express gives you extended insurance coverage if your purchase is stolen for 3 months (I think it is 3 months not sure).
Should I stop using credit cards?
Of course, not! The key here is to not make them rich. Use them but always, always pay the full balance at the end of the month or when the payment is due. NEVER send the minimum payment.
The next time you are at the mall or dining, ask yourself, can I afford this? Can I pay the full amount at the end of the month? If the answers is no, then you cannot afford it. Don’t buy it or you will give your money to the credit card companies.
Also, next time you hear the commercial and a famous actor or actress is asking you: What’s in your wallet? Say: MY MONEY.
God bless to all and sorry I have not posted any material. This is a hobby for me and I don’t get pay for this. I do it to help you all. But believe me, anytime I post something you better believe it is worth it.
Later!
The Chief