Thursday, June 5, 2008

Credit Card Companies -- They always, always win

We've been launched into summer (it's over 100 degrees in Tucson already) and our credit card debt is down to $6900. It is not the $5000 I had hoped for, but it is considerably less than the $24,000 I started at last summer. $17,100 less, to be exact.

Still, the interest we're paying on that $6900 in credit card debt is $50 a month. That's $15 for a cash withdrawal (huh? I don't even remember a cash withdrawal, but it must have been an overdraft from months and months ago) and $35 for regular interest. That's $50 we could spend on two nice items of clothing a month...or a gym membership...or we could put it aside in an IRA and have an extra $600 a year towards retirement. Oh, how the credit cards siphon money from people! From ME.

Here's an interesting article about credit card rewards:

About 85 percent of U.S. households participate in at least one rewards program, according to a study released Monday by Consumer Reports.

And though rewards do spur consumers to spend more, the study found that confusing rules and restrictions make most reward cards more trouble than they're worth.

...

And while cash back, gas and grocery rewards credit cards can offer some relief for costly essential items, they often carry higher annual percentage rates than traditional credit cards, Consumer Reports said. Looking at some of the more generous credit card rewards programs, the study found that rates varied from 9.74% to as much as 19.99%.

We've gotten caught in the "points" game before, and have learned a hard lesson from it. I racked up nearly $7000 on my American Express card trying to get cash back; the cash back I got from last year (one single purchase was over $5500 -- I just read on my own blog that I used the card to get cash back from it) equaled $118.00. $118.00? Yes, that means I put over $10,000 on my card in order to get 1% cash back, paying who knows how much in interest (my monthly interest on credit card debt used to be almost $200). Credit card companies charge daily compounding interest, but that 1% cash back is a one-time annual bonus. It's like a $30 Christmas ham for the employee who makes $20,000 a year; it's a pat on the back, not real money or real help.

Here's a tip for beating the credit card companies -- don't use your card at all. Keep it for emergencies, and when you need to use it, pay it off immediately. They've always got an ace up their sleeve, and you just can't beat them at their own game.

The only way to truly get credit card rewards is by keeping your balance at zero.

1 comment:

LittleStar said...

Credit card debt is on its all time high with today's economy. Hopefully people can obtain the help they need to get out of debt. Thanks for the article!