I’ve noticed lately that the credit card companies are using a new tactic (or at least new to me). They’re doing things for cardholders that on the surface appear to be helpful in order to make you think that they’re on your side. They’re you’re friend, and they’re here to help you!
I’ve seen a Discover Card commercial lately where they talk about how we should all use their card because they can help you identify problem spending areas. By using your credit card, you’re getting a built in easy to do budget and spending tracker! Budgets are a great idea, but usually are only helpful if you’re the one doing it, and you have a handle on where your money is going. Most of the time people who are relying on their credit card as their spending tracker are the same ones who have a hard time using a credit card responsibly.
I was opening my mail last night when I found a nice little ad touting the benefits of my Chase Rewards credit card. It was titled:
Here Are 5 Tips To Help You Make The Most Of Every Dollar
(along with a scan of the title):
Wow, isn’t that nice of them? They’re trying to help me make the most of my money, and in fact, they want to give me free money! The credit card companies care about helping me save (yeah right)! Here’s how they plan to help me:
- Use Your Card Wherever You Go: 1% cash back on all eligible purchases! No purchase too small! Get cash back on that bag of Doritos you just bought on credit! Never mind the fact that when you use a credit card you’re very likely to spend more than if you had just paid cash. There is just something about using cash that hurts more. Dun and Bradstreet found that on average people end up spending 12-18% more when using a credit card! By way of example, when McDonald’s started taking credit cards for purchases, the average purchase went from $4.50 up to $7.00! NPR had a show a while back about why people spend more when using credit. Listen here.
- Make Chase Rewards Plus Your Favorite Place To Shop: Get up to 10% bonus cash when you shop at Chase’s online shopping portal! Hey you were going to buy that basket of fine wine and cheese anyway, right? You may as well save 10% on it too! While you’re at it buy that pair of new shoes, and that Wii game! Are they really trying to save me money, or just buy more stuff that I don’t need?
- Pay Bills Using Your Card: You’re paying everything else on your credit card, right? You may as well start paying your bills on your credit card too! You don’t want to miss a payment and get your water turned off do you? Budgeting for regular expenses is for suckers when you can just pay it on credit, and save!
- Add An Authorized User… At No Extra Cost!: Adding an authorized user to an account is usually a bad idea (there is reason why they can’t get their own account), and a good way to run up your credit card bills. Hardly making the most of your every dollar! This one should be filed under “ways to start going into debt even quicker“. Shouldn’t adding an authorized user be free anyway? In fact, they should be paying us to add an authorized user!
- Feel Secure With Your Upgraded Benefits: Here’s where they throw in some nice features like price protection, identity theft insurance, rental car insurance, theft and damage protection, extended warranties, etc. The problem is that most people, even when they’re aware of the extra coverages, never actually use them! They’re nice features, but not usually something that you’re going to use. Often, when you do want to use the extra coverage, the eligibility is defined very narrowly, and you may not be able to make a claim anyway. If you do use these features make sure that you know the fine print in case you do end up needing them.
Out of all of those, the only one that really makes any sense to me is the using the extra warranty coverage or theft coverage, but even those benefits are minimal when you take into account the added risk you’re taking on by using the credit cards. The rest of the company’s ways to “help you make the most of your money” are actually just ways they’re getting you to spend more money with them. The more you spend, the more they make in interest!
A lot of people think that they can pull one over on the credit card companies, and get ahead by taking advantage of all the cash back schemes and money back cards. When it comes down to it, though, most won’t win this way. Credit card companies aren’t stupid, they do these cash back cards for a reason. These cards make them more money by encouraging debt, and by encouraging the normalization of the use of credit. When people use rewards and cash back cards, they end up spending more money, and often these cards have higher interest rates wiping out any gains they might have made.
In the past people wouldn’t even dream of using credit for small purchases. But today we think nothing of using credit cards for everything from a pack of gum to a flat screen TV. The more we spend on the cards, the more the credit card companies make.
So next time you get one of those friendly ads that are telling you how to save money, be wary. The credit card companies are not your friend, they just want your money.
They are not your friend, they are mean people,
even if you are a very valuable customer to them.
I entered in the wrong checking account number when recently paying my HSBC credit card and they charged me $39 for a returned payment fee. They absolutely would not take it off. I am no longer their very valuable customer.
I totally agree with the spend more with a card then with cash study. I can vouch for that. I am not so easily inclined to part with my cash.
Great post.
While I can see how some people can have problems with credit cards, I have been able to gain by using credit cards carefully.
I don’t have a hard time remembering that money charged on the card is the equivalent of cash which will come out of my bank account to pay for my purchases at the end of the month, and therefore don’t spend more than I would were I paying cash. I also keep most of my money in savings to interest until it’s time to transfer to checking to pay my bills.
Since the first credit card statement I ever received, I have seen through the credit card companies’ ruse to try to get you in debt by offering a low minimum payment, so I haven’t let myself fall for it.
And my sister and I always share credit card accounts with the additional user card because we share all our money and can earn more cash back more quickly that way. We’ve earned over $500 in cash back from AMEX and almost $200 in Amazon GC’s with the Chase card.
As long as you’re careful, treat credit card spending as cash and pay in full every month, I don’t see a reason to not take advantage of rewards credit cards.
The first sentence you wrote was the important one i think, you’ve learned to use “credit cards carefully”. From that sentence I gather that you understand that credit cards carry risk and in fact can be dangerous if you don’t use them cautiously. If only more people were more careful about their CC spending as you are.
This is just another tactic from the credit card companies to increase the spending with their credit cards. As far as helping us establish a budget…by time you receive the information on how everything was spent it is too late. A budget needs to completed before you spend any money. These companies are not our friends. Remember they only way they make money is if we charge something on their card and they will do anything they can to keep us charging.
I’ve learned just how predatory credit card companies can be. While we have been lucky thus far and our remaining balances are all at fixed rates under 6%, not everyone has been fortunate. Some friends have balances at 20% and higher. Between high interest rates and encouraging people to spend money they might not even have, credit card companies are in it for one thing: the money. Morality holds no sway.
We’re going to see even more of this “friendly” behavior, I think. As consumers pull back, credit card companies are going to be looking for ways to get us to spend money again.
I agree! I’ve seen these commercials and schemes Discover Card is using. It saddens me that many people believe anything having to do with a credit card company trying to “help” is actually helpful. I wanted to share some helpful bonuses that you can add on to your DEBIT/CHECK card if you still want the benefits without the debt:
-Many banks offer the option of online bill pay and you do not have to sign up for a credit card to use it.
-Banks such as Citi and Wells Fargo have rewards programs for check card users that range from about 12-80 dollars a year depending on the program. Inquire if your bank has such a program. I travel and like the fact that Citi offers an American Airlines mileage program for my debit card.
Like he’s stated in the post, don’t be fooled by the creditors or roped into their madness!
Kimmy B. “The Prosperity Blogger”
Yeah…they are master marketers….they know that if only 1 in 100 fish bite, they have got more people on the line and soon to be in debt (to them).
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Spot on Peter… the CC crowd are not our friends and it is interesting to watch how they are repositioning themselves as aides in our movement for greater fiscal responsibility.
The parallel I’d draw is like the police commissioner being in cahoots with the crime bosses… drugs won’t be peddled in certain parts of town and a certain amount of busts will be permitted to make the cops look good but the ciminals will have full run in other areas to do as they please.
That sounds like the CC companies to me.
Thanks Peter!
Dave
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I’ve found out in the last week that I’m actually considered a ‘bad customer’ to my credit card company.
I’m one of those people that put necessities on my card like gasoline and groceries, then pay off the total balance every month. I never accrue interest. I never pay the minimum.
In essence I have a credit card for 2 reasons.
1) Build a credit history by showing that I have a credit limit and never making late payments
2) Save a small amount of money by delaying the payment on necessary things for a month.
Conceptually the second one only worked for the money saved in that first month. After that I was always paying off the previous month’s stuff while adding to next month’s bill. But I think it still counts.
And yet you have Google AdSense that shows ads for the credit card companies — because you want to make money from your readers. So how are you any different? The answer, of course, is that you’re not. Just another self-righteous hypocrite like every other “Christian.”
Brad I agree that I, and every other Christian, is a hypocrite. We all struggle against our sinful nature, and from time to time we sin – just like everyone else, and at times we go against what we truly believe.
In this instance I don’t agree with you, however, that showing adsense ads on my site is hypocritical when it comes to credit cards. First of all, I’m not making any money from my readers -I’m making money from google who is paid by the credit card companies. Sure, people who have signed up for the credit cards are paying me in a very roundabout way I suppose, but if they clicked on the ad here, they have at least been warned to be careful about the dangers of credit, and are more likely to not pay interest charges or use credit cards as an emergency fund.
My post is simply a warning to those who would use credit – that they need to be aware of the dangers of using credit cards, and that they shouldn’t be lulled into a false sense of security by credit cards claiming to look out for their best interests. I understand that some people are able to use credit cards responsibly for rewards, cash points, etc. For those people, as long as they’re extremely careful – I have no problem with them using credit. But I do think that people need to be aware of the dangers when using them. So if you think my warning people about the dangers of credit, while still allowing credit card ads on my site is hypocritical, so be it. Good luck and God bless.
A new law is coming out to prevent credit card companies from abusing their interest rate hiking powers. In the meantime, credit card companies are taking advantage of the time they have left by boosting interest rates. Those devils. Great article by the way, regardless of what Brad said.
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it really depends on the person who owns the creditcard.
I’ve been using my card for years now and enjoyed the benefits of it.
Since i always pay on time it’s no problem for me.