One thing I want to tell you about myself is that I do a lot of research before making any financial decisions. That’s just the way my analytical engineering mind works.
It can be torture to be this way, so I am not saying you should emulate it. But since I’ve done so much home work in so many financial areas, I thought why not let other people benefit from this as well as just me.
Selecting a credit card is one area that I have spent a lot of time looking at. The credit card industry is a hugely profitable business for banks, that’s why you see so many bank commercials trying to get you to use their cards.
What secrets are they hiding? What do they not want you to know? How do you not get suckered into the bank’s trap? And why only one credit card is really the best one? That’s coming up right now…
Credit cards are a huge profit center for banks and financial institutions. Why? Just think about it, the average interest that a bank charges on a credit card is 17.65% – this is legalized loan sharking, because a bank cannot charge this kind of interest rate anywhere else.
Not on mortgages or business loans. The interest you pay on your mortgage for example is a much more reasonable 5%. Business loans are 8% or so. Credit cards more than double that.
In addition, the average US household carries a balance of $7000 on their credit card. Multiply these numbers together:
$7000 x 17.65% = $1235 — This means that banks can expect $1235 per year of free income for every single person they can get to sign up for their credit card. That’s significant. That’s like getting a $100/month cable subscription fee for just giving you a piece of plastic.
Where does this $100 per month of steady money come from – it comes from millions of people, maybe like you, who carry a balance on their credit card. This is a huge financial opportunity and windfall that banks get when they sign you up. That’s why they fight tooth and nail, compete against each other, and offer all kinds of incentives to get you.
But that’s not the only profit center for banks, you have to realize that on top of raking you over the coals with their interest rates, they also rake the merchants over the coals – by taking a cut of about 2 to 4% on every single purchase you make. This is called merchant transaction fees. Merchants pay this to the credit card companies for the “privilege” of accepting credit cards from consumers. They have no choice because you would rather use your credit cards than give them cash or checks.
To make things even more unfair for you, the credit card loans and fees are set up so that once you accrue interest, it is not easy to pay it all off in one big lump sum, because you find out at the end of the month that interest is accumulating on top of interest. This is compound interest in reverse.
Like I said, this is legalized loan sharking my friends.
But people love to use their credit cards because it is fantastically accessible and convenient, and people are wooed in by all the potential rewards that are being offered. Now, I want to tell you how not to fall for their tricks, and how to take advantage of the banks yourself.
First the rewards are only true rewards if you pay off your balance at the end of every month, otherwise you are paying the bank 100 dollars so they can pay you back $2. Would you take that kind of deal from a stranger? You bet you would. It’s a great deal if you can get it. And you would make a sucker of someone.
So I implore you to never ever keep a monthly balance on your credit card. Almost every other loan is better than a loan from your credit card company. Take a loan on your home equity. Take out a personal load from a credit union. Heck, take a loan from a friends if you have to. You will be better off. Better yet, learn to live below your means and pay off your credit card balance at the end of every month.
If you absolutely have to carry a balance, pay it off as quickly as possible. The longer you take to pay it off, the more you are being taken advantage of.
I’m not saying don’t get a credit card. In fact, I encourage you to get a credit card, but you can only make it to your advantage if you pay off your balance every month.
If you can discipline yourself and your family to do this, you can take advantage of the banks. How? I’m going to tell you how.
Get a credit card that pays cash back. Credit card companies will try to confuse you with their loyalty cards, points, and frequent flier miles. They also have offers like $100 to $300 if you sign up with them, or free travel miles, or other crap. Just tune these out. They are trying to confuse you on purpose. It’s to make a lot of noise, so you don’t see the real picture, and so they can seduce you to take their crappy offer.
Cash is almost always better than any other reward. Airline miles are worth about 1% of the value of your purchases, and points are rarely worth more than 1%.
I have done all the research – the best credit card to get is a simple cash back card. Specifically this one: City Double Cash Master card. This card pays you 2% in cash back. 1% as soon as you make a purchase, and 1% after you pay your bill. 2% back is the highest available cash back you can get on all purchases for a credit card in the United States.
This card is not only accepted almost everywhere, it also has no annual fee.
In addition, they have a 0% interest for 18 months for new customers. And even if you carry a balance, their interest rate is competitive, starting at 15.7%. They are head and shoulders above everybody else, in my opinion.
I have tried all kinds of other cash back cards, and this one is the best in my opinion. Nobody else that I am aware of gives you 2% on every purchase, Capital One gives you 1.5%, American express gives you 1%, and 6% on groceries, but you pay $95 per year, and it gets confusing.
Discover gives you 1% on everything and 5% on groceries and gas. This again gets confusing because you have to figure out if the 5% on groceries and gas will give you more than 2% overall.
I used to carry American Express, but after I made all the calculations, it was a wash with this Citi Double Cash card. You’re better off with a straight 2% off everything. It is simple.
Now, if your life situation is such that you have to carry a balance, then look into Penn Fed Gold Visa Card – it has an annual interest rate as low as 9.24%, with no annual fee and a 0% APR offer for new customers.
I hope this little bit of knowledge, and homework from an obsessive analytical geek helps cut through the clutter, and saves you a bundle of money.
If you found this helpful, and you want to see more of this kind of stuff, let me know in the comments below. Give me a thumbs up. I wish you all the best my friends.
