Just look at it, tucked away ever so neatly in the folds of your wallet. That little 3 3/8 X 2 1/8 inch glossy credit card looks oh so innocent as it shimmers and gleams in the light, waiting for its next day of action!
But the credit card company who issued you this seemingly harmless card are far from naïve. In fact, they know exactly what they are doing.
It’s no coincidence that according to the Federal Reserve’s latest survey 46.2% of American families are holding credit card debt and are now in search of debt relief. Credit card companies have made a multi-billion dollar industry out of knowing how consumers think and by predicting the average consumer’s habits. Here are a few things that banks know that credit card consumers are sometimes in the dark about:
- Possibilities for Problems in the Economy. Many credit card companies have entire teams dedicated to researching the economy and predicting possible economic issues that would cause consumers to use their credit cards more frequently.
It is no coincidence that at a time when many people believe that the American economy has hit a recession due to increases in the price of oil, food, and other everyday necessities, the credit card industry is banking more and more interest due to an increase in the daily use of credit cards.
- 0% APR Offers Lure You to Spend More, Thus Owe More. A few years back, credit card companies began sending out numerous 0% APR offers to convince credit card holders at other banks to transfer their balances. While many people took advantage of these 0% offers to save money and pay off debt, they may not have taken into account the fact that by helping to free up money on their credit card accounts, these credit card companies were actually creating somewhat of a trap.
If a consumer who is trying to pay off credit cards decides to use the new 0% APR credit card after a certain period of time (even if the 0% balance transfer APR is in effect for the life of the debt), the interest rate on that new purchase balance can shoot up to 18% or more, and is paid off last. That means that 10, 15, or 30 years down the line when the 0% balance is finally paid off, the amount you purchased on the card at 18% has been accruing in interest for all of that time as well. You may find yourself in the same boat as before!
- “Rewarding” You With a Higher Credit Limit Keeps You Hooked. Credit card companies frequently “reward” good customers who pay their bill in full faithfully every month by increasing their credit card limits. But in actuality, they know that as long as your limit continues to rise, you are likely to use the card even more.
At some point in that pattern of behavior, you will reach a peak where the credit card company will no longer raise the limit and is profiting from the higher finance charges on your credit card bills. It’s all about predicting the consumer’s behavior.
- Your Past History Predicts the Future. Another bit of invaluable knowledge that credit card companies benefit from is your full credit card history. They have a detailed history of your past purchasing habits, balances, and what you have done in certain situations that have arisen in your financial history.
What you have done in the past is a good predictor of your future actions. For example, maybe you started a business and used your credit card to purchase $1,000 in business equipment one month. Now your creditor knows that you are more likely to use your card for both personal and business purposes.
In another example, if a creditor sees that you have a penchant for expensive designer clothing, they will not only assume that you will purchase more in the future, but also send you special offers in the mail for designer clothing from its advertising partners.
- Consumers Don’t Always Read the Fine Print. Creditors also bet on the belief that most credit card consumers are too lazy to read the fine print of their credit card bills and agreements. If a credit card customer continues to pay the minimum payment, not knowing what the APR is, and not knowing how payments are applied, they can become trapped in a long cycle where they will pay off credit cards for an extended period of time. Meanwhile, the creditor will continue to reap the benefits of the consumer’s lack of knowledge for a long time to come.
The number one thing that credit card companies know way in advance that we consumers don’t always realize is that life happens. Unexpected bills arise, cars need to get fixed, and medical and dental procedures have to be performed.
In many of these situations, consumers have found themselves so deep in financial distress that their automatic answer to unforeseen costs is to start swiping. And so continues the saga of American consumers who are trapped by excessive credit card bills and savvy credit card companies that make money off of the desperation and unawareness of consumers.
If you have found yourself in a situation where you have fallen victim to some of these traps and have accumulated a significant amount debt due to life happening, it’s important that you know there is hope, and yes there is a solution to your debt problem. Debt relief programs like the one you’ll find at NetDebt.com have helped thousands of consumers break out of their “debt trances.”