This article reveals
the truth about how banks allocate the monthly repayment in the bank's
interest by establishing a hierarchy predicated on the various interest
rates they charge, so that holders of cashback credit cards will always
be punished, whatever action they take. It also shows why it is important
to renew your plastic once the opening cashback credit card offer time
above to apply.
A leading finance
lender lately started a television campaign which made great play about
the awful truth that a large majority of card suppliers split up usage
habits into various categories then allocated a different interest rate
depending on which category was taken into consideration. These different
levels were based upon the perceived spending models of the average
credit card holder. Such people include holders of cashback credit cards.
If you go by the
advert, a large majority of credit card companies presume that the card
user will start by transferring the balance from a previous card (thereby
wiping the balance out) for an average period of 39 weeks. This will
be at zero percent interest rate for that time. The credit card owner
will then make a new purchase using his or her plastic which will on
average draw an interest rate of approximately 15%.
Did you know that
you could write
off credit card debt by using this service? So download your free
information pack today and write
off your credit card debt by the summer.
The card user may
also use the cashback credit card for getting some ready cash. Your
interest rate for cash is set higher than the rate charged for purchases,
and this is on average between 19% and 21% but which might reach as
high as 23 percent or over.
Now here's where
the trickery starts. As the monthly payment comes around, the cashback
credit card lender will ensure the less costly purchase items are at
the head of the list when the time comes to pay the minimum, or whatever
proportion of repayment has been decided by the card holder. Thus the
most expensive parts of your credit card usage - and that's usually
the cash component - is put right at the back where it will rack up
more interest, and where all that interest will be further compounded
when interest is charged to the existing interest (we all know how it
works, don't we?)
The cashback credit
card user may believe that they are clearing things in a uniform manner,
and that if one type of cash attracts a higher interest rate then that
will be balanced out by the goods purchase which will be charged out
at a lower interest rate. The reality is very different.
Because the bank
will always put the less costly portion first in the paying hierarchy,
and allow the more expensive parts to just sit there accruing interest.
These higher interest rate segments will thus always be the last to
be paid. In the average case, for the first 9 months of this cashback
credit card all the repayments will be used to pay the zero interest
portion while the new purchase and the cash component remain clocking
the more expensive parts will always be at the back, always being paid
off last. Last to go will be that cash advance, with its massive 21%
or whatever it is. It is ironic to think that the longer the 0 interest
period, the longer the interest will rack up! Then when you add on the
fee that most cashback credit cards nowadays charge for making that
balance transfer, then you know why the credit card companies are making
so much money.
The only credible
solution is to dump the cashback credit card and transfer the balance
to a new card when the interest free period ends. Based on what we've
seen the banks do as a matter of course, that really is the only option.
is an Internet marketer and technologist. His credit card sites automatically
alert people when their interest free period is about to end. See Credit
Card Transfers, and the UK site is Online Credit Card Transfers.
Blog entry: cashback
You are free to reproduce the above article as long
as it is reproduced in its entirety (including the author's biographical
resource box) and with any hyperlinks live and intact.