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Sneaky Ways Credit Cards Get You To Spend More Money - YouTube
Channel: Business Insider
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Credit card debt in the US
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hit $870 billion at the end of 2018.
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That's a record high.
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In fact, over half of
Americans who own credit cards
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have debt on them.
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And part of what gets
us into these debt holes
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are the tempting offers
from credit card companies.
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Hidden fees and reward
programs can trick customers
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into spending more than
they otherwise might.
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Clip: Wow, look at all the signs.
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Narrator: And if that balance
isn't paid off in full,
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those rewards points aren't
going to be worth it in the end.
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Let's start with the reward programs.
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They offer a variety of benefits,
including airline miles,
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cash back, and points you
can put towards shopping.
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This can be great for customers.
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I mean, who doesn't like free stuff?
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And credit card companies
can boost the rewards
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when you first sign up for the
cards as an extra incentive.
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For example, the American
Express Platinum card
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currently offers 60,000 reward points
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if you spend $5,000 in
the first three months.
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Now, if you're about
to make a big purchase,
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those points are a nice bonus.
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But if you end up spending
more than you otherwise would
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just to hit that $5,000
mark, consider this.
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One point is typically worth
only between $0.01 and $0.02,
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making those 60,000 points worth
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somewhere between $600 and $1,200.
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So, let's do the math.
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Say you usually spend $500 on
your credit card per month,
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and you increase that to
$1,666 for three months
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to get those 60,000 points.
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You've now spent $3,500 more
than you otherwise would.
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And, yes, you may get
$1,200 back in points.
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But that leaves a difference of $2,300.
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That's $2,300 more that you spent overall
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and that you're never getting back.
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But $1,200 back is the
max you'll likely get.
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It might be less.
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And figuring out exactly
how much you're getting
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for every dollar spent can be tricky.
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In the AmEx Platinum's
rates and fees section,
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it says, "The value of
Membership Rewards points
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varies according to how
you choose to use them."
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So it's hard to be sure
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how much value you're actually getting.
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And the eagerness to spend for points
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can get you into trouble.
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Sarah Silbert: Obviously,
it's very attractive
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to get points or miles
from your credit card,
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but if you're not paying
off your balance in full,
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the points or miles that you're
earning are not worth it.
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Narrator: Because you're going to get hit
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with that interest charge.
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A credit card's interest rate
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is also called the APR,
or annual percentage rate.
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The APR determines how
much you'll be charged
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if you don't pay your balance
in full by the due date.
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On average, the APR for new
credit card offers is about 19%.
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But store credit cards from places
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like Banana Republic, The
Home Depot, and Target
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have some of the highest
rates in the business.
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And if you're not paying attention,
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those charges can add up.
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The average household
with credit card debt
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pays $1,292 in interest each year.
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Now, some credit cards
will waive interest fees
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for the first few months to a year.
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And you might think,
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well, this is only a problem
for people with bad spending
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habits who don't pay off
their card in full each time.
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Clip: But there's a lot
more to it than that.
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Narrator: Even if you're
responsible with your payments,
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there's still other ways
credit cards can cost you.
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Silbert: There are lots
of credit card hidden fees
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that you could be surprised by
if you're not aware of them.
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These fees are hidden in the sense
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that they're buried in the fine print.
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They're definitely documented,
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and you can find them
if you look for them.
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But they're not super
apparent if you're just
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glancing at the credit
card application online.
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Narrator: Some cards
have fees you can't avoid
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by diligently paying your card on time.
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Like a foreign transaction fee.
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These are fees placed on
purchases you make abroad.
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But they can also be charged
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on any transaction processed abroad,
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even if you yourself are not traveling.
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So, if you're making a
hotel reservation in Bali
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or buying a cool pair of
pants from a Japanese website,
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you might want to make
sure the card provider
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isn't charging you a fee
to make that purchase.
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Foreign transaction fees
typically run around 3%,
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so for a hotel room
that costs $150 a night,
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you're paying an additional $4.50.
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Just think, you could have bought yourself
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an iced coffee with that money.
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Other fees to look out for
are balance transfer fees,
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authorized user fees, late
payment fees, and an annual fee.
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You could get charged an
annual fee once a year
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just for having the card.
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On some cards, it can be quite high,
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like the Chase Sapphire Reserve card,
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which has an annual fee of $450.
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Ouch.
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But the Sapphire Reserve also
offers a $300 travel credit
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and a hefty sign-up bonus,
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so if you're using it for travel
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and are a big spender
anyway, it might be worth it.
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So, with all these sneaky
fees and incentives,
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how do you avoid a credit card
bill at the end of the month
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that's higher than you expected?
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Silbert: The best way to use credit cards
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is to treat them like debit cards.
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So that means don't spend
anything more than you can afford,
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you need to pay your balance off in full,
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and that way, any rewards
that you're earning
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are really rewards in something extra.
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