Evil Credit Card Tricks

It was really interesting reading the comments in my Why You Should Never Live on Cash post. Many of you understood what I was talking about. Just as many disagreed with me for one reason or another. Many are still stuck in the credit cards are evil mindset.

When it comes down to it, it’s not the credit card that is bad, it’s the person using the credit card. If you’re financially irresponsible, then it doesn’t matter if you live on cash or credit. You’re going to be a mess either way. You need to stop blaming the credit cards and look in the mirror.

While credit cards may not be evil, the same can not be said for the credit card companies. In many cases, they’re more evil than me and some of the tricks they do to trap people into spiraling debt are extremely sneaky. It is partly because of these tactics that gave credit cards a bad rap. However, a financially responsible person would learn the tricks and learn how to avoid them.

Do Not Pay Until 2010

This one is a classic. You’re offered a credit card with a free interest period – charge whatever you want interest free for six month to a year. Just make the minimum payment each month and the bank will be happy.

The problem comes when the free interest period is over. If you do not pay off the entire balance at that time, interest not only gets charged, it becomes retroactive to the day you got the card. In other words, all that free interest wasn’t free.

The way to avoid this track is to pay off the full balance. However, the bank is hoping that by now you’ve rack up a balance close to the credit limit and won’t have the funds to pay it off. You’ve just become a cash cow.

The 0% Balance Transfer

This is another bank favorite. Are you trapped by a high interest credit card? Transfer your balance to our card and get 0% interest for a year! It sounds like the bank is being a nice guy and losing money on this deal but they make a mint from it. The bank only lose money to people who actually know how to take advantage of a 0% balance transfer deal.

While the Credit Card balance may indeed be transferred at 0% interest, many banks charge a fee for doing the transfer. The average fee is 3% of the amount of each balance transfer with a $5 minimum. Want to transfer $10,000 from the high interest card? It will cost you $300 right off the top.

The next thing the banks will do is try to get you to charge new purchases on your card after youโ€™ve done the 0% transfer. The reason they want you to make new purchases on the card is so they can charge their standard super high interest on those purchases.

Here’s the kicker. The payments you make every month will go to pay down the 0% balance transfer first. The new purchases will keep accruing interest at 18.9% (or whatever the current rate is). So, if you made a $10,000 transfer and then make the mistake of charging a $150 dinner for two on the card, interest will be charge on that $150 and will continue to be charged until the $10,000 is paid off.

This is why there are so many 0% offers around holiday time. The banks are hoping you use the card to make those last minute purchases. It is also very common for the banks to raise your credit limit right after you’ve made a transfer. They want you to use the card. Once you do, you become a cash cow.

The Credit Protection Insurance Scam

This one is my personal favorite. Credit protection insurance is by far the biggest rip off banks pull on unsuspecting consumers. Banks love calling up their customers to offer them credit protection. For an average fee of $0.89 per $100 balance, this insurance will make your monthly minimum payment in the event of involuntary unemployment or disability. In the case of a critical illness or death, the insurance will pay off your balance as long itโ€™s not more than $10,000. The banks sell this by saying if you have zero balance, it doesn’t cost anything, so let us sign you up.

Anyone who looks at this offer closely will see how big of a scam credit insurance is. If you have a $10,000 average balance, it will cost you $89 per month for insurance that will make your minimum payment should you get laid off or become disable. Most credit cards have a minimum payment of $10 or 2%, which ever is greater. So, the minimum payment on $10,000 would be $200. However, if you pay $89 per month for this insurance, you can feel safe in knowing that should you become unemployed or disable, this insurance will pay that $200 for you! Wow! What a deal! If you can pay $89 per month for insurance, then surely you can find away to come up with $200. But hey, some people like being a cash cow.

Are You a Cash Cow or a Smart Credit Card User?

Half of all credit card users do not pay off their balance every month. Those are the cash cows. They pay all the interest so the other half, the smart credit card users, get all the benefits like cash back, trip rewards, gifts, etc.

Evil marketing from banks aside, at the end of the day, it’s the credit card user who must take the blame. I see advocates blaming banks all the time for offering cards to people who shouldn’t get cards. When was it a bank’s job to protect people from themselves?

People get into financial mess because they refuse to accept responsibility for their actions. A credit card is a tool and like any tool, it can be good or bad depending on how you use it. Used smartly, it can help you achieve many financial goals. Use irresponsibly, it will make you a cash cow.


64 thoughts on “Evil Credit Card Tricks”

  1. Yea I never sign up for those – love the credit card insurance one – thank god they finally came up with a do not call list for telemarketers

    1. Jon says:

      Correct me if I am wrong but financial institutions or people you owe money to are EXEMPT from the “do not call”. The smarter companies simply call from off-shore places which are not governed by our laws… “do not call” lists are nice idea but without a global treaty, nothing more than a great PR stunt by governments trying to make people think they actually DID something useful for its citizens. The best solution is to scrap your phone entirely and get skype ๐Ÿ™‚

      Jon
      http://WoodMarvels.com – Create Unique Memories

      1. LOL ^ Well.. I love playing with them.. Whenever I receive a call from a bank offering me a credit card or some stupid scheme which I don’t need and I already know about it.. All I say is: My pocket money is $100 a month and I am very irresponsible about money.. Btw, Did I tell you I am only thirteen.. So when do I get the card/scheme?” *Phone Hangs* lmao ๐Ÿ˜›

      2. BusinessX says:

        Agree with you about Skype. Love that you can forward the number too.

      3. True enough – but it still helps – I personally tend to not pick up any numbers that I don’t recognize, and if it is important they will leave a message!! ๐Ÿ™‚ hehehe

    2. OMG I hate that damn insurance stuff…for only such and such per $100 you can be assured that blah, blah, blah :<

      1. Its best to subscribe to your network people for a Do Not Distrub.

        1. then you might lose good deals

    3. Ben Pei says:

      Now this is a good backup post to the one that says say no to cash..

  2. Adam Bshero says:

    I couldn’t agree more.

    With today’s financial situation, people still seem to spend and try to live above their means… Just take a look at all the foreclosures.

    Just because you have a credit card limit or are able to take out a loan, does it mean you should?

  3. plin says:

    Credit cards were definitely a lot more appealing a few years back when you can call them directly and ask them to waive the 3% balance transfer fee. Without the balance transfer fee, one can put the free borrowed money (e.g. 10k) into a 5% yield online saving account and make $500 yearly. Unfortunately in a credit crunch, there are no more high yield saving accounts and no more waive of transfer fees.

  4. Once again, advertising on certain products is proven to be false.

  5. Lemonpoof says:

    What’s a credit card?
    We’re back to the barter system in the UK ๐Ÿ™

  6. Mike B says:

    Your are right about the rewards with cards and such. I have a great personal example with my own family. My father who use his cards very frequently and RESPONSIBLY pays off the debt on time and has been reaping the benefits ever since (blu ray player, harmon karmon remotes, travel etc.) yet my other family member who will remain nameless is the walking definition of a “cash cow” and is continually stressed by the mis-management of there debt.

    1. I personally love the credit cards that give you cash back in the form of a dividend – end of the year dividend is always a nice thing before christmas!!

  7. Melissa says:

    Totally agree that it’s not the card that’s bad; it’s the card holder that’s ultimately responsible! I have a great Upromise credit card. I’m able to save an extra $50 for my children’s education each month on top of what we already are saving for them because of the 1% on purchases that goes to our Upromise account (then sweeps to the 529 plan we’ve attached to our account). If you can find a great reward card and pay off your balance each month, credit cards can be your friend!

  8. JP Holecka says:

    If you are smart and disciplined you really can beat them at their own game. The key is to have the discipline to do it. I keep enough revolving credit going for a good rating but take advantage of all the offers. I also recommend incorporating if you are a small business. If you do have to carry a balance and pay interest it is a lot easier to write it off as expense when you are incorporated.

    JP

    1. Vik Dulat says:

      I couldn’t agree with you more. It comes down to discipline and using your card wisely.

  9. raincoaster says:

    Too many people still confuse their credit card companies with the sweet tellers down at the bank on the corner. They’re in the business of making money off your use of money, and it pays to analyze just how they do that.

    1. True say!! I like your gravatar – very native art-esque!!

  10. Totally agree that itโ€™s not the card thatโ€™s bad; itโ€™s the card holder thatโ€™s ultimately responsible!

  11. Exactly! You have to take responsibility for your actions and far too many people are finding excuses nowadays as to why they can’t do that. They blame everything other than themselves and end up digging a whole where they’re buried in debt.

  12. So true. If you get into debt with credit cards, you would most likely find a way to get into debt with cash. On the other hand, if you treat your credit cards like cash, rationing it to meet your cash flow, you won’t run into problems with your credit cards. That is card-holder responsibility. There is no such thing as don’t pay until 2010. Those of us who are self-employed know that you have to save up for taxes as you go…because if you wait for tax time to look for the money, it won’t be there. Is a full year of credit card expenses any different?

    1. Very good point!!! I was actually in this predicament before where I usually started saving for taxes near the end of the year, then the end of the year slowed down, and I didn’t have enough to pay the tax man!!! I eventually came up with it, but it was not a good feeling by any means

  13. Thanks for the post. It’s amazing that credit card have been allowed to get away with so much under the radar. They’re never vilified despite deplorable tactics.

  14. Credit cards are for your benefit ๐Ÿ˜‰ Use them wisely or become a cash cow ๐Ÿ˜€ But I wouldn’t mind becoming a cash cow if the bank is offering a good percent of interested ๐Ÿ˜€

  15. BusinessX says:

    These are some great insights to these legal credit card scams.

  16. Re: No interest until 2010. What most people don’t realize either is that if they have a stable job, they can go get an $8000 (with TD) credit line, which has an interest rate that is much more competitive than say not paying the interest free offer.

  17. game-girl says:

    The credit cards being so convenient and popular not long ago. I think the same situation will come againin2-3 years in its new modification.

  18. jtGraphic says:

    Pay the balance every month. ’nuff said. I use AMEX with rewards and it’s awesome, because once you get around 100K points, you can always trade it in for something great.

  19. uwak says:

    I never hear before…thanks for the tips

  20. Thankfully I know the moves that credit card companies try to pull. However, because the economy is like this now, they’re quite evil to increase the interest % past the initial high mark. Some are around 30% now..

    -Mike

  21. J.D. Meier says:

    Good rundown of the evil tricks.

    I got scammed many moons ago, since I didn’t know what to look for or how the game was played. Once you know how it works, it’s easy to spot the ploys.

  22. Ann Mobile says:

    Very informative post thank you!

  23. game-girl says:

    Pay the balance every month. Easy to say!

  24. I’ve gotten the 0% balance transfer before. Never fell for it though. Common sense should tell you that they’re just trying to screw you over.

  25. Mike says:

    Yeah, after I pay off my few remaining cards…its going to be cash only for most things.

  26. Wow, that’s a very good post, thanks!

  27. sdogood says:

    “When it comes down to it, itโ€™s not the Credit Card that is bad, itโ€™s the person using the Credit Card.”

    I guess one could say the same about “communist” dictatorships.

    While I absolutely agree with John; that people need to take personal responsibility. I would no sooner recommend some one pickup a 9mm without training than I would recommend credit cards over cash in a forum as large and diverse as this one. Let me reiterate, if you are coming to this blog for your financial education you should NEVER NEVER NEVER get a credit card. Banks design credit card programs to separate you from as much money as possible.

    I’ve held credit cards for more than 20 years. I’ve done a few smart things with my credit and mostly dumb things. I’m not judging anyone, especially anyone who is using their credit responsibility. But, honestly, John (others) do you really think that the advice to “Never Live on Cash” is appropriate for most people? Here’s some advice that is good for anyone.

    Do a budget, that is account for every dollar you intend to spend before you spend it. Savings, Housing, Utilities, Car Payment, Medical Marijuana, etc.

    Save a couple of grand for emergencies (may take some time but $1-2k is doable

    Work your budget, if you need something that is not on the budget say $240 worth of tires use the emergency fund then adjust your budget ($10/mo for tires) so next time you need tires you will have saved enough money to buy them without dipping into savings.

    And repeat. Your income and financial responsibilities change over time, so review your budget anytime you have a major change in your life but at least twice a year. If you feel you are too artistic for this BS get some help from a partner or close friend.

    If you must get a credit card, study and read up on the offers to make sure you pick the best card for your needs.

    If you tend to carry a balance every month forgo the frequent flier miles for a lower interest rate.

    On the other hand if you use your card often and pay your balance every month and have done so for a period of time you might consider a rebate card.

    I’ll shut up and let the credit card optimists fillet me now :0)

    1. Harry Tran says:

      I agree with your comments and the plan to create a budget, something many people took for granted the last few years.

      No one could predict that the economy would fail on them, and job loss would reach the millions so most people thought they didn’t need to built any safety nest.

      I would imagine that if people knew their jobs would disappear in 2009 they would adjust their budgets reasonably and not make certain purchases, whether it be 2 less nights of eating out or a dvd rental rather than buying 4 tickets for a family to go watch a movie at the theaters.

      Outcome should always be less than the income whenever possible, and when it’s not possible that is when the credit cards should supplement those expenditures, and those expenditures shouldn’t be items such as TVs, laptops, and automobiles, but rather dental work/medication/auto repairs etc.

  28. waa. thats too crazy and devil.

    but its good point. I learn some tips here.

  29. Shirley says:

    Yeh, credit cards definitely have some of the biggest scams out there. And that’s why there is so much small print. I mean, I have never seen size 6 pt font on any other document but my credit card statement. THEY DON”T WANT YOU TO KNOW WHAT’S GOING ON.

    Great article.

  30. iskandarX says:

    I only check my credit card at 1st January every year. I’ll follow your step after this. Wait and hear my good news soon.

  31. Harry Tran says:

    You’re right! It is totally dependent on the user/owner of the credit card that determines the path they will lead. And whether they will drown in $80,000 of credit card debt (and that is all too possible with the amount of credit being offered to people for the last few years, some cards will offer $20,000 credit limits on one card alone) or they’ll have a reasonable sized card balance that is manageable and with an effective plan to pay it off.

    I say it is the user/owner’s that depict how debt will be used because ultimately that is the person that is left to pay for this debt. Banks that are too big to fail, auto industries and airlines can all rely on a government bailout because their doom means economical collapse, but no one is going to bail out the small credit card consumer so it’s a matter of control.

    But as with the user/owner’s lifestyle or personality that tells the tale of debt, it is also that person’s ability to pay back if they may have lost a job and if the debt isn’t even a huge one but just a matter of $2,500 the person might not be able to repay that debt if they feel that their job is unstable or they just lost their job they might decide to pay their debt off later, deferring the repayment and the credit card will be able to cash in on this debt.

  32. game-girl says:

    I got to know much teaching info from lectures delivered above and the significance of the credit cards in our life.

  33. Winagain says:

    John, I tried to read your post “Why You Should Never Live on Cash”, but I get this error message: “Die spammer! Die!”.
    since I haven’t access your blog in a couple of weeks or commented in a while (I receive updates by email), I guess the error is the post itself.

  34. game-girl says:

    But the real life teaches lessons of the other sort!

  35. Hawachan says:

    I agree with what other people are saying about Credit Cards being King as long as you are in control (ie. not spending more than you normally would if paying by cash and making sure repayments are made on time).

    However cash can be king when purchasing expensive items (eg. cars, property etc). Because when paying by cash, it is possible to ask for a discount.

  36. Zach says:

    My all time favorite is the 0% balance transfer, people think of it as free money!

  37. Cakka says:

    Thanks for sharing information. ๐Ÿ™‚
    I am being learning to monetize my blog ๐Ÿ™‚

  38. mike says:

    EVIL I say…pure unadulterated EVIL!

    What schemes foisted on unsuspecting people by greedy capitalists? But wait it gets even better…I mean more EVIL.

    The banks are in cahoots with Fair, Isaac folks (you know, the guys who created the credit scoring algorithm?)

    Credit card insurance…BAD!

    Enticing balance transfers…really BAD!

    2.5% minimum payment requirements…uberBAD!

    But did you know that 30% of your credit scores come from how much DEBT you carry at any given time when they calculate your scores (before you pay off your card each month)?

    Credit limit is $10,000. You carry $5,000 balance. Your debt2credit utilization is a whopping 50%.

    Diabolical…pure EVIL!

    High D2C ratios = 30% of your credit scores. I’m a freakin’ genius to many people who follow me at one of my sites. Most people didn’t get a chance to take “Get A Financial Life 99.”

    Small tweaks in the way we do business might just put a little extra change in our pockets each month and make it so that we don’t even have to think about a credit score…or whether a Bank is putting the squeeze on us.

    It’s all about sharing what we know with those who don’t know. What awesome KARMA…especially for the EVIL John Chow.

    Cheers, everyone.

  39. jtGraphic says:

    Hope it’s ok I post this, but someone else sent me this link:

    http://www.doughroller.net/credit-cards/federal-reserve-approves-sweeping-credit-card-reform/

    Right in the vein…

  40. Glenn says:

    John,

    I love your advice about the credit cards. It took me a few years when i was younger to figure out how to be responsible with my credit, and now I use it to my advantage.

    The gimicks the card companies use are truly EVIL. I am glad that new legislation is coming down the pipeline to help protect those who don’t read nor understand the small print. I’d rather the merchants out there get more and not the banks..

  41. John Chow: I just lost a comment that I was working on for several minutes, with a lot of detail (facts and figures about the credit card industry), small business credit card usage, and so forth. I clicked on gravatar (because I already have an account), and I lost everything in my post. You really should set that gravatar.com link to “open_target_blank.”

    At this point, I am now pressed for time today (college entrepreneurship professor with a new semester starting), so I’ll have to suffice with a summary:

    1) I have a protest site that I’ve been working on, Change in terms dot com (about abusive credit card company tactics).

    2) I have published papers about entrepreneurial bootstrapping (starting a business with little or no capital, and a substantial percentage — round-off to half — using credit cards as a source of capital).

    3) A majority of all start-ups bootstrap.

    4) Based on my work, testified before Congress on the Item 2 and 3 subject (video/transcript on my site).

    5) Other visitors: “Don’t shoot me,” I’m just the reporter of the facts; I did not say that I advise students or anyone else to use credit cards (see item 1, again). Read my blog, published papers, and see the testimony, first, before launching any counter points. One guy on another site flamed me without bothering to read or look at anything, based only on my job title. After going back and forth, he finally figured out that I am not a life-long academic (I’ve started several businesses); I think academia is way out of touch with the “real world,” and several other things about who I am and what I really think. Ended with him saying in effect: “Oh, I see what you mean — you raised same good points.”

    6) John Chow: I have another site, BootstrappingStories.com — under construction for some time; Yaro, 3 years ago, when he was only making a few thousand a month from E-J and his writing site, introduced me to Nick Schoonens, a programmer who helped with the initial development; I know you’re tight with Yaro, so give him my regards.

    1. hesitations says:

      Robert

      “I just lost a comment”

      This is 100% avoidable.

      Write your comments in a word processor and save them

      Then drag and drop over to the comment section.

      I learned the hard way.

      john

  42. Tommy says:

    Another great article from John!~

  43. Cash only! Credit will eat you alive. And how to use credit is not taught, it’s usually a hard lesson learned.

  44. 100WordRants says:

    This is a great post! There are a lot of individuals who are not familiar with these practices put on by the evil credit card companies. I think extra precautions should be taken in these economic times. The best advice is to pay off balances monthly. You improve your credit score while eliminating interest charges.

  45. Ali Hussain says:

    I don’t like credit cards. I live on cash

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