It is always easy to pay with credit cards. Salespeople are taken aback when you offer cash or god-forbid want to write a check. All this keeps the banks happy, they know you’ll lose track of your charges and spend more than you normally would.
Banks are businesses, big businesses at that, and they count on you losing track of your balances and spending during the month. They actually love you to go (slightly) over your change limits so they can tack on that over-limit fee. This little slight-of-hand can be controlled with a little effort on your part.
This is How The Bank Make Their Money
There are a few different ways that banks make the money that they need to operate. The first is though overdraft/overlimit fees. Many people have to deal with this kind of fee because they lose track of what they are spending. They might forget that they have used a credit card and then write a check that will bounce after they have ran a credit card. When this happens the bank can charge money on the account and they make that money for their business.
Another way that they make money is through loans that they may have out to people. When they are late paying their bills, they make money on the late fees that they may charge. These can be a lot more than people think and can amount to a lot of money in the long run. These banks then make money for the payment being late.
These methods still continue today even months after the crisis.
The banks really want to offer you all kinds of different ways to spend the money that is in the account that you may have. This is because they want you to lose track of how much money is in the accounts that you have and to help you to spend more than what you may have in the account. Then they will be able to charge you for the amount that you went over.
The banks have also taken to charge fees to actually get many of their cards. American Express for instance has yearly fees on their cards of up to $2500. This for their Centurion Card which they justify with the extra services offered with the card. Think of it this way – you pay a fee to have the privilege of charging things on the card and paying them back monthly. Remember when you charge on their card AMEX withholds about 3.2% from the amount that actually goes to the vendor you purchased from. This means they get 3.2% per month, or 38.4% per year, on their credit card money. As to the extra services of travel consultants, etc., now you are paying for using their travel service (they make a commission), and charging again on their card – they again make a fee. Not a bad racket!!
We should all watch what and when we spend any money – cash, check, or card. There should be a point during the month that we just stop because we know now it becomes borrowed money we will be living on. Remember, that borrowed money must be repaid and if you resign yourself to doing this over several years the $1 you spent may become $4-5 you have to pay back. Unless your income is rapidly growing this repayment plan will eventually impact your lifestyle. The buy-now, pay-later, attitude will catch up with everyone eventually.
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