Credit Management Credit Traps Credit Traps
Written by George M. Howard Jr
Credit Traps
Thinking back to some old Bugs Bunny cartoons; I could not help but to think how Bug's was always too smart for farmer Elmer Fudd. Trap after trap was plotted and laid out but somehow Bug Bunny was always a step a head of the game. He always knew and understood that taking the bait would be his demise. In his calm and cool demeanor he was able to look Elmer Fudd in the eye and ask him his famous words, "wassup doc?".
America is the richest country on the face of the earth; however we have the highest percentage of people living from pay check to paycheck. According to ACNielsen one in four Americans do not have any spare cash. To put it another way, Americans have no savings. As of June, 2010 consumer debt in America totaled $2,400,000,000,000 (2.4 trillion) according to the Federal Reserve's G.19, Nov 2010, report on consumer credit. Leaving an average of credit card debt per household $14,750 on a 14.73 APR. There are approximately 307 million people in the United States however there are 609 million active credit cards. That is two credit cards for every man woman and child. America, we have been seduced by credit traps.
There are five credit traps lending institutions have set for the average consumer. Taking their bait can leave you in a trap that can be your financial demise. Do not be discouraged there is good news. Like Bug's Bunny you too can be a step a head of the game. While banks and credit card companies are placing enticing bait on their traps, in your calm and cool demeanor you too can stand tall and ask the same question to each lender, "wassup doc?”.
Stay ahead of the game by reading how lender and creditors are seducing you. Below you will find some of the traps and seducing bait lender use to keep your ensnared in their traps.
Miles
Frequent Flyer Miles - a consumer is allowed to earn points for each dollar purchased which can be used to purchase airline tickets. . Usually a consumer will earn one point for each dollar spent. However, points are usually redeemed in blocks of 25,000 points. This equates to $25,000 to book one flight domestically. You tell me who wins? $25,000 at an average 14.73 APR equals $,3,682.50 in interest or $28,682.50 in total repayment if this is paid off in 1 year. I think I can buy a lot of a lot of airline tickest for $3,682.50.
Discount
Department Store Card - open a charge and recieve 10%-20% off - Okay how much sense does it this make? I will give you a one time 20% off if you let me charge you 22% on all future purchases. And if I give you a card I know will come and shop here instead of my competitor. Who wins? Not you? Do not fall for the okee doke. This is not a good deal.
Reward Points
Reward points - If you have a credit card you’re probably collecting rewards points in your account that you can redeem for free travel, hotel stays, gifts, and more but what are they really worth. Well, like frequent flyer miles usually the consumer will recieve one point per dollar spent which should equal .01 cents, but not really.
When you redeem points for gifts and services you recive less than .01. The credit card company has a predetermined amount of points need to purchase an item. These predetermined values usually equate between .003 to .008 per dollar spent. So let get this right. For every dollare I am spending, in return I'm not recieving a penny for my dollar? In addiontion, the bank is charging me an average of 14.73 APR. Who wins? Not you!
Cash Back
Cash back - Now why would the bank give you cash back? Because, you are giving them more than they are giving you. Typically the bank will give the consumer 1% check in the mail if you spend between $2,500 and $6,500 per month in return. Again, lets do the math. You spend $2,500 a month and in retun they will give you $25.00 cash but the interest on the $2,500 is $368.25 a year or $30.69 a month. You are taking a $5.69 a month lost plus compounding interest. It a trap... run!
Low Rate
Low Introductory Rate - Here is another trap set for consumers. If you do not pay this card off in full every month, you lose again. Most people pay only the minimum payment during the promotional period, but they end up increasing their spending due to the additional cash that's now freed up. They figure that since they have a year to pay the balance before the actual APR takes effect that they have plenty of time to save the pay-off amount.
The problem is, that the average American credit card user puts off saving for the end of the introductory period just like we put off saving for retirement and our kid's college funds. The promotional 0% rate eventually becomes replaced by a 17% APR, and hardly a dent has been made in the balance.
In addition, there are penalities and fees the banks have set for those who attempt to beat them at their own game. For example, if you are late your introductary rate can be converted to the default APR rate ususally over 17 percent.
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