Credit Card Disadvantages For Interest Rate Cuts

With the recent  American Federal Reserve official announcement of interest rates dropping below 1%, it's typically safe to assume that credit cards are cheaper than ever. While lower interest rates make up the bulk of credit value, there are several other factors which will diminish the value of these recent rate cuts.

Stoozing Isn't Possible

Stoozing is the basic way of creating money with credit cards - taking advantage of 0-3% introductory offers and placing that advanced money into a 5-10% high interest savings accounts. When interest rates are high in a period of economic stability, savings accounts rates skyrocket. In times of economic downturn, while 0-3% promotional offers are still available, savings accounts tend to drop as low as a couple of percent.

While there's still room to make money stoozing, the margin of profit is so relatively small that the effort and time involved will generally not compensate.

Consumers get Carried Away

If your interest rate is 20%, you're well aware that you need to be on track of your credit and payments or you'll pay inflated repayments. However when your credit card interest rate is down to the low end of single figures (3-8%), it's easier to adapt a 'carefree' mindset. When you lose discipline and track of your credit cards, it won't be the 6% APR which hurts your $200 purchases - it's the $25 late fee for missing a day on your payments.

More Pitfalls

Everyday people aren't the only ones at stake for loss in a recession - many banks are constantly balancing on a thin line of bankruptcy and liquidation. Thus, they will implement every trick in the book to reap some extra form of revenue from their customers. This often comes in the forms of extra and more expensive 'ancillary fees', which consist of:

  • International withdrawals
  • Increased administration fees
  • Duplicate statements - need an extra statement for any reason? $5-$10 fee right there.
  • Supplementary card charges
  • Late payments - while these are always present, they will typically be more costly in times of trouble.
  • Cash advances - arguably the mother of revenue from unwary credit card customers. Some financial providers will take a large cut of up to 3% of the total transaction per withdrawal.

Note that the above fees are completely subjective to each individual bank and their policy. While there are more credit card traps in store, they aren't unavoidable. Take the above concepts into mind and watch carefully for the ever changing fine print. If you stay on the ball with your credit card, you can easily enjoy the benefits of low interest rates without the associated bank-traps.