Do you know what credit card secrets the bank doesn’t want you to know?
Most likely you’re being told things like:
“It’s safer and more convenient to carry around a credit card.”
“Use your credit card for all your purchases to increase your credit rating.”
“You’re wasting money if you don’t pay off your credit card every single month!”
And these things are all true. But there are also some deep, dark credit card secrets that you don’t know about. You see, the truth is that banks and credit card companies actually make billions of dollars from credit cards. If you understand the business model behind how credit cards work, you can protect yourself as well as save money.
I believe knowledge is the most powerful way to protect yourself. It’s why lawyers are paid so well – because of the knowledge that they possess. They understand how the legal system works, and know the best methods and loopholes to protect themselves and their clients.
If you have multiple credit cards or are someone who’s thinking about getting one soon, make sure you know exactly what you are getting into, or you’ll unknowingly find yourself drowning in a sea of credit card debt.
How The Credit Card Industry Works
The credit card industry is a billion dollar industry that is MASSIVE. More than 189 million Americans have credit cards, with the average card holder having at least four credit cards. As of December 31, 2018, consumer debt is at $16.1 trillion, with this number only going up as the years go by.
If you’ve ever been approached by a credit card representative at the mall, you would recognize their setup. They always have their booth in an area where most people are sure to walk by. And when you get close to them, they’ll ask if you’d like a free gift or money voucher – all you’d have to do is sign up for a credit card. It’s that simple, so you sign your name and information and before you know it you are walking away with a free $50 bill in your hand. It’s easy money.
But have you ever wondered why credit card companies are so eager to give you free stuff in the first place? The reason is because they know they are going to make so much money from you in return, that it doesn’t matter what they offer you. They know that once you sign up for a credit card, they have you right where they want you. You’ve fallen into their trap, and you don’t even know it – a trap cleverly disguised as a $50 bill.
The Sneakiest Trick Credit Card Companies Use To Make More Money
Now you have a shiny new credit card in your wallet, and are bound to try it out. After all, you get 2% cashback on every purchase you make and with enough purchases, you can even save up enough points for a new big screen TV!
In reality, it is not that simple. The interest rate on a credit card right now is around 17%. What you don’t know, is that the bank has the right to adjust your interest rate at any time. The bank can increase your interest rate whenever they feel like it, and you won’t even notice.
When it’s time for them to increase interest rates, they’ll mail their customers a package containing a big stack of legal documents. In these documents are information that tells you your interest rate is going up – giving you around 15 to 30 days notice. Like most of the junk mail you get, you are probably going to glance at it for 2 seconds then throw it into the trash. That means you never become aware that your interest rate goes up, until it’s too late.
The Power of Compound Interest
Most people fall into the deadly trap of credit card debt because they don’t understand how compound interest works. Compound interest is most easily explained with an example – if you took a penny and doubled it every single day, by day 30 you would now have $5,368,709.12. By doubling the amount every day, the amount that is left compounds on itself to create more wealth. That is compound interest.
This means that if you have credit card debt, and you aren’t actively paying it off every single month, you are in big trouble. Your debt is now increasing every month, on top of the interest rate charging you interest on the increased amount. Going back to the penny example, your credit card debt is increasing using the principle of compound interest. Now the power of compound interest is negatively working against you – with your debt compounding on itself to grow bigger and bigger until it’s a 700 lb gorilla.
This is why people making minimum payments have difficulty paying off their debt, because of compound interest. Instead of paying off your debt, you are only paying off the interest that is generated. As a result you could be making minimum payments for years, only to find out your debt hasn’t actually been reduced by a single cent. That’s the power of compound interest.Compound interest can work for you and against you. Educate yourself so you know the difference. Click To Tweet
How Banks And Credit Companies Make Money From Credit Cards
Banks and credit card companies make a lot of money just by having you use their credit card. Even if you are diligent and pay off your balance every single month so there’s no interest charge, they still make money.
For example, let’s say you are a business owner. When someone comes into your business and makes a purchase with their credit card, the credit company charges you a fee called an interchange fee. This fee is for the convenience of providing a machine so that customers can pay using their card. If a customer makes a $1,000 purchase on their credit card, the credit company will charge you a small percentage which is around 3%.
As a result, the credit card company makes $30 for doing absolutely NOTHING. This is why some businesses do not accept credit card as a payment method. You see this in restaurants very often – where they’ll have a sign that says ‘cash only’. The reason is because these restaurant owners do not want to deal with the hassle of having to pay a fee every time a customer pays the bill with their credit card.
The More You Use It The More They Make
Banks and credit card companies make money from two ways: From interest rate and per transaction.
This is why they encourage you to use your credit card as much as possible. They more purchases you make with your card, the more they get to collect in fees. In exchange, you get rewarded with money back, points, loyal customer appreciation and free gifts. For these credit companies, it is in their best interest for them to get you to use your card, and will use methods and marketing tricks to influence you to do so.
Don’t get me wrong – a credit card itself is not a bad thing. Credit cards provide convenience for shoppers, and the more you use it the higher your credit score is. But a credit card becomes dangerous when it is in the hands of someone who doesn’t understand how it works. For someone who doesn’t take the time to acquire the knowledge behind how credit card debt works, it can be extremely dangerous.
Let me say that again – DO NOT ACCUMULATE CREDIT CARD DEBT. It is a very dangerous and slippery slope that once you have fallen into, is extremely difficult to get out of. When I was just starting entrepreneurship, I failed at 13 businesses and racked up 100K in credit card debt, so I know exactly how dangerous it can be. I don’t want you making the same mistake I did – if you are going to use your credit card, make sure you have the discipline and knowledge to use it properly so you don’t end up in the same trap I did.
How One Phone Call Could Save You Thousands
You can save money with one simple phone call to your credit card company. Now that you realize just how much money credit card companies make from you, there’s something you should realize:
You are a valued customer.
To them you are like a walking cash machine, printing money everywhere you go. Everytime you use their credit card, they make money. And you are the one who is responsible for generating that money for them. As a valued customer, you have a degree of influence and power over them – power that you can use to negotiate better terms for yourself.Credit card companies need you more than you need them. Click To Tweet
For example, you could call them right now and say “Hey, I’m thinking about cutting up my credit card” or “I’m thinking of switching to <rival credit card company> as they’re offering me a better interest rate”. If you were the credit card company, how would you react if your customers who are making you so much money, said that to you?
You would most likely do anything within reason to keep them as your customers. And that’s exactly how they feel if you were to call them. You will be surprised what can happen by just simply asking for it. If you want a lower annual fee, a higher credit score rating or a lower interest rate on your credit card, the company will most likely give it to you just because you asked for it. Remember that you are a valued customer – to them, by fulfilling your request they can keep you longer as a customer, which works to their benefit. They will be more than happy to do as you ask if it means you’ll stay as a customer.
The Power Is In Your Hands
These are some of the most powerful credit card secrets banks don’t want you to know. Credit cards are powerful – you can make purchases that you normally wouldn’t have the money for, such as buying a new car, going on vacation or using it as a convenient replacement to cash. But the most powerful thing you as a customer can do with a credit card, is using it to generate a lot of money for credit card companies.
Credit card companies understand this, and are willing to do anything to keep you as a customer. They know that by having you as a long term customer, they’ll get their money back tenfold through interest rates and merchant fees. That’s why as a valued customer, you need to know your worth and use it as leverage to negotiate with them and get the terms and conditions you want.
But be careful not to fall into the trap of debt. When I was 100K in debt, credit card companies were chasing me every single day. I learned that even with a job I couldn’t make enough money to pay it off fast enough, and had to find another solution.
The solution I found, was something I call High Income Skills. High Income Skills are skills that:
- Generate at least $10,000 or more a month
- Pay you based on the value you deliver to the marketplace, not what your boss or manager thinks
- Increases your income as you get better at that skill
Once I learned my first High Income Skill, which was copywriting, I was able to consistently generate more income every single month, which I used to pay off my debt faster. By having a higher income, I could afford to make higher monthly payments, allowing me to keep up with compounding interest and even outpay it to eventually become completely debt free.
If you’re curious to learn more about High Income Skills and discover what skill is right for you, click here to take the quiz now.