Peregrine

On May 25th, I was reading The Wall Street Journal. The cover story was titled, “Credit-Card Issuers’ Problem: People Are Paying Their Bills“.

Why would this be a problem for them? After all, they are in business to make money, right?

Sure, merchants who accept credit cards pay a small (or not so small, depending on which card we’re talking about) transaction fee plus a percentage of the transaction in order to offer their customers the convenience of card usage. With over 1 trillion such transactions per year, the card processing firms aren’t hurting. But, note that I said the processing companies. That would be companies like VISA, MasterCard and American Express. Card issuers are banks and other entities who actually back the cards. Yes, Amex has their own bank and issue cards, too, and processors like Discover and Diner’s Club only issue cards through their own banks. It’s the banks who receive card payments from consumers. They don’t get a penny from the card processing operations.

So, why would it be such a problem for a bank to get paid?

The banks actually make the vast majority of their credit card profits from the interest charged on card balances. But, as The Wall Street Journal reported, more and more people are paying down those balances. Lower balances equals lower interest payments equals lower profits.

Additionally, more and more Americans are waking up and not only paying down their cards, but keeping them down or getting rid of them altogether once they finish paying the card(s) off.

I say, go ahead; pay those balances off and don’t run your cards up. Especially given the outrageous interest rates people with excellent credit are now paying. Of course, if you know what you are doing, a quick phone call can cut your rates in half.

Call up your credit card issuer (bank, credit union, department store, whomever) and ask for a lower rate. They will almost always give it to you. They want you to stay with them, forever, and they know you’re not going to do it if the interest is bothering you. They would rather keep you for the long haul than see you go bankrupt and never pay on it again.

And remember this: it always pays to shop around for the best deal on anything you are going to buy. That includes money. I always shop for the best price on my money.

I’ll use myself as an example, I pay less than 3% on each of two car loans from my bank. There was no promotional offer or special arrangements through a dealer. I simply negotiated a reasonable deal for all. My bank loves to do business with me. Since they give me a decent price on the money I buy from them, they know I’ll come back. These two cars are number 2 & 3 that I have financed with them (used cars, too).

It’s always worth asking if you can get a better price. Spend one minute negotiating sometime. You might just be surprised at how much money you could save.