Banks want you to enjoy the advantages of paying with credit, debit, check and cash"because it will make you more likely to lose track of your money.
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 can be called the Bank "Money Machine"
As your credit card balance goes up and up the interest you pay each month also goes up and up. Many times the minimum payment does not even cover the interest payment for that month so next month you pay interest, on the interest they already charged you. If you err and go over your assigned limit most times they will approve the charge, raise your limit, and just charge you an additional "overlimit" fee for the month.
The next way they make money is with loans - cars, houses, etc. Besides the regular interest for these loans many times there are additional fees for doing business with the bank. Imagine if you owned a deli - the customers come in and pay you for a sandwich. They get the sandwich and you get the money - but no - you also charge them an additional fee based on how much the sandwich cost. That is what banks are doing when they charge you points for a mortgage. Besides the stated interest of say 5%, there is a 1.5% fee just to borrow the money so the bank can charge you interest for the loan. On a $150,000 mortgage that means you have to come up with an additional $2250 just to GET the mortgage. Then there are late fees, application fees, etc.
Why They Want You to Use All These Methods.
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 want you to use their cards - debit and credit - for all your purchases. This business plan encourages you to be very loose with your finances. A check at the restaurant becomes to easy to just put on the card and worry about it later. Gone are the days that we check our wallet to see if we had enough money to actually go to the restaurant. Enjoy now, pay later. We are all digging ourselves a whole that we may never get out from.
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.
More Information:
Richard Moran is a Financial Consultant and writer for
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