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How Credit Card Companies Make Money

Do you understand the enormous fees that credit card companies invoke?  When you are happily using your newfound purchasing power to buy that new monitor or ipod, did you know that your budgeting habits may make them end up costing triple the price?  Here are some of the main ways credit card companies make money:
Debt consolidation
1. Most credit cards have a grace period during which you do not owe interest.  Often this will be thirty days, as in the day they cut your monthly statement.  When high interest charges on people that carry a balance is not enough profit for the credit card companies, they shorten the grace period to 25 or 20 days to grab new debtors.  Even some credit card companies start charging interest the minute you make the purchase.   A smart credit card user pays off their entire balance every month, but even then you must look out for tacts such as late mail-outs or altered due dates.
Debt consolidation
2. Late Fees and going Over the Limit.  Many credit card companies charge up to $39 for a late fee.  The same increasing amount is applied to over the limit fees, where they will approve the purchase to put you over your credit limit, then charge a fee, accellerating your plunge into debt.
Debt consolidation
3. Cash Advances.  Cash advances are a trap that credit card companies offer now.  Interest on these loans start right away and most of the time at a higher percentage than your purchases.  The shear number of ATMs makes using your credit card for cash that much easier.  Don't fall into the trap of being so happy to get cash that you forget what these expenses add up to in the long run.
Debt consolidation
4. Annual fee and Inactivity fee.  Many credit card companies charge an annual fee for the privilege of their service.  They may charge you monthly to spread it out and keep it small. The inactivity fees comes into play when you don't use your card for 4-6 months - they may charge you $15 for not using it.  More ways to keep your money rolling their way.
Debt consolidation
5. Two-cycle billing is another way credit card companies get you.  Instead of charging you interest on the average daily balance of one month, they use the average daily balance on two months.  This seemingly small change tacks on a little bit more to your debt each month.  Two-cycle billing essentially counteracts the grace period for anyone that carries a balance.  Be aware of the fine print!

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Credit Card Debt Survival Guide


Debt consolidation
Imagine if you make a late payment after you went over your limit.  Or took a cash advance at the same time your annual membership was due.  The charges never stop and your debt has a way of mulitplying.  When you are late making payments, credit cards can penalize you in the way of a higher interest rate.  Often the bold print will say fixed rate, while the fine print lists conditions in which they can increase the interest rate.  Educate yourself, and know what the consequences will be before you making buying choices.