Americans are no strangers to credit card debt. Household Debt survey. If you’re one of these people carrying a high balance on your card, you’re probably racking up interest charges. So, as your credit ctedit issuer is making money off the interest and cardss you have to pay, you’re losing more and more of your hard-earned cash. But there’s a smart way you can pay off your credit cgedit debt: Make your credit card work for you. Sure, swiping your card everywhere you go won’t get you rich quick. But when you use your credit cards strategically, you can generate some cash for payments. Or, if you’re debt-free, you can use the extra funds to pay for an upcoming trip or that flat-screen TV you’ve always wanted. Here are seven creative ways you can make money with your credit cards.
The Bottom Line
Credit card companies make the bulk of their money from three things: interest, fees charged to cardholders, and transaction fees paid by businesses that accept credit cards. Use credit cards wisely, and you can minimize the amount of money that credit card companies make off of you. The network also makes sure that the transaction is attributed to the proper cardholder — you — so that your issuer can bill you. The majority of revenue for mass-market credit card issuers comes from interest payments , according to the Consumer Financial Protection Bureau. However, interest is avoidable. Issuers typically charge interest only when you carry a balance from month to month. Subprime issuers — those that specialize in people with bad credit — typically earn more money from fees than interest. Mass-market issuers charge plenty of fees, too, although many of them are avoidable. Major fees include:. Every time you use a credit card, the merchant pays a processing fee equal to a percentage of the transaction.
Get Money With Discount and Cash-Back Credit Cards
Using credit cards to invest is a risky proposition, but can reap large returns. Making money with credit cards may seem oxymoronic, but it is in fact possible. The process is called arbitrage. The process involves using low-interest or zero-interest credit card advances to invest in high-yield savings accounts. More savvy investors use advances to invest in high-risk stocks and bonds. You can make money with arbitrage, but it is a dangerous investment strategy. Check your credit first. You should not engage in arbitrage if you have poor credit. You will be risking high-cost money that isn’t yours. Visit the site listed in the Resource section, Annual Credit Report, a federally mandated site. You should also pay for your FICO score, a three-digit number between and Do not engage in arbitrage unless you have a FICO of at least
Where the money comes from
How credit card companies work
However, because I see so many reader comments detailing bad experiences with credit cards, I decided to do some investigating. Businesses need to make jake. Consumers need to understand how these companies operate in order to use their credit cards conscientiously and avoid destructive behavioral spirals.
While this may seem like an exploitative tactic, the credit card companies act as intermediaries for all parties involved in the transaction: issuing banks, cardholders, and merchants. Luckily, merchants are required to disclose any credit card surcharges upfront and detail that extra fee on your receipt.
Keep a watchful eye out for surcharges when you pay with credit. Utility companies or government agencies such as the DMV will often add a surcharge if you use a credit card. I try to avoid using a card anywhere that adds this charge.
Not only will they drive up your credit card bill, but incurring certain fees, like late fees, will damage your credit score. Depending on your credit limit and the rewards program, that expense may outweigh the benefits. Credit cards often come with a range of useful services such as balance transfer offers and cash advances. A cash advance might selping like the answer to your short-term money problems, but you could be paying that off for years.
Personally, I have about six credit cards that I use for specific purchases. A recent survey of major U. At the What this means for you: Because just a few missed payments can quickly spiral into serious debt, consumers often mistakenly assume that credit card companies want them to get in too deep.
After all, that means more cars for the creditors, right? The more spending power cardholders make money selling credit cards, the more money these businesses make, whether they carry high-interest balances or not. Even a small purchase can quickly become a burden when you account for the interest over time. You also want to avoid maxing out your cards, because carrying high balances lowers your credit score.
Treat your credit cards like the finite amount of cash you carry in your wallet. Both American Express and MasterCard have profited off of this tactic. MasterCard sells data by ZIP code, which tells retailers what areas are more likely to make purchases. Then, online advertisers can take this data and create targeted advertisements. What you can do about it: This practice is, thankfully, on the decline.
Make sure to read card agreements thoroughly to find out whether a specific company will profit off of your data and whether you cedit opt. When used responsibly, credit cards offer numerous benefits. Credit and Debt Credit Cards. The Bottom Line When used responsibly, credit cards offer omney benefits. Loading Disqus Comments Featured on:.
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