Credit Card Rates: 7 Ways to Beat Credit Card Companies at Their Own Game

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Would you like to take on credit card companies and win?

The odds may seem stacked against you - after all, those credit card companies are very successful at what they do. However, some consumers manage to beat the credit card companies at their own game on a daily basis. The trick is understanding the game, and how to play it.

Understanding Credit Card Companies: the Game

The goal of credit card companies is to make you pay as much in interest and fees as possible. They do this by keeping credit card rates high, by extending the length of time over which you pay interest, and by subtly introducing fees.

So, if the game of the credit card companies is to maximize the charges that you pay, your goal as a consumer should be to minimize those charges. Unfortunately, as a group consumers do a poor job of this. According to figures from the Federal Reserve, there is currently over $870 billion in credit card debt outstanding. An average interest rate of 12.73 percent, credit card companies are earning interest on that debt at an annual rate of over $100 billion a year. And that doesn't even account for the fees.

Clearly then, the credit card companies usually win the game, but if you want to avoid contributing any more to their $100 billion in winnings, you need to know how to beat them at that game.

7 Ways to Win the Game

Here are seven ways you can beat the credit card companies at their own game by minimizing how much you have to pay them:

  1. Pay your bill in full every month. You know that "minimum payment" listed on your credit card statement? The irony about that minimum payment is that it is designed to maximize the amount you pay in the long run. By dragging out the time it takes you to repay your credit card debt, these minimum payments cause you to pay more interest over the long run. At the other extreme, if you pay your bill in full every month, you get to use the credit card company's money for awhile without paying anything for it. That's winning the game!
  2. Pick rewards programs only if you pay your bill in full every month. Rewards credit card rates are typically higher than non-rewards rates. So, if you carry a balance that is charged interest, you are paying an extra price to participate in the rewards program -- and probably a higher price than the rewards are worth. However, if you pay your bill every month, you can accumulate rewards without paying anything for them - and that's another way of winning at this game.
  3. Consider your credit rating when comparing credit card rates. A low credit card rate might catch your eye, but be aware that credit card companies only give their best rates to customers with excellent credit. If you dig a little deeper into the disclosure, you will probably find that the credit card company is offering a range of rates, with the rate you get dependent on your credit history. If you have a blemished credit history, you should probably be more concerned about the high end of that range than the low end when comparing credit card rates. It's tough to win with bad credit, but at least making the right comparisons can help you minimize your losses.
  4. Watch out for balance transfer fees. 0 percent balance transfer offers are a popular marketing technique for credit card companies, but free is not always free. If there are significant fees associated with transferring your balance, it may more than negate the benefit of not having to pay interest for a limited time period. Make sure your credit card company doesn't beat you with these fees.
  5. Consider fees to be another form of interest. Regular monthly fees can turn out to be even more expensive than one-time balance transfer fees. Credit cards with monthly fees sometimes offer lower rates, so the fees may be worth it if you regularly carry a large balance, but if not, you should focus more on the fees than the interest rate. Remember, you win by minimizing credit card charges, whether they come in the form of fees or interest.
  6. Recognize that having two tiers of credit card rates can be tricky. Another thing about balance transfer offers is that they can result in you having two levels of interest rates - one on the balance you transferred, and another on new purchases. A recent FDIC consumer newsletter reminded the public that if you have two tiers of interest rates and make partial balance payments, the credit card company typically has discretion over which balance to apply it to - the one at the high interest rate, or the one at the low interest rate. Chances are, they will have you pay down your low-interest debt first, so you might lose by not actually getting the low balance transfer rate for as long as you expected.
  7. Compare credit card rates - regularly. Shopping around for rates can make a huge difference, but once you find a good rate, remember that it is not written in stone. The credit card company can readily change that rate - especially on future purchases - plus the marketplace itself can change. Regularly check your statements against the marketplace to make sure you are still getting a competitive rate, so you can keep on winning at this phase of the game.

The rules for beating the credit card companies at their own game are fairly simple, but they require discipline. However, that discipline will make your household finances a lot healthier, and the finances of your credit card companies a little less robust. Isn't that a game worth winning?

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