We have 0% credit cards, or they call it zero APR credit cards. APR stands for annual percentage rate. In essence, what they mean is, it’s a new credit card and it only happens when you’re applying for that credit card the very first time. Banks, what they typically do, is that they give you an introductory offer. That introductory offer will allow you to make purchases and pay no interest for a certain period of time. That certain period of time could be six months, or sometimes it can be nine months, sometimes it can be 12, perhaps 18. Then if you’re extremely lucky, depending on the state where you’re applying, you might be able to find a card that offers you a 24-month 0% interest.
In essence, that’s what it means, you will get to make a purchase for whatever time frame that you have. That introductory offer in your credit card and you will repay that debt. Now that you got that concept clear and you understand what a 0% credit card is, let’s just dive into the seven reasons why banks will issue you a 0% credit card.
1. Free marketing
Why is it free marketing for them? Think of it this way. When you have a business, you need to attract food traffic, you need to attract new consumers, and how do you typically do that? You will have to either hire a marketing agency or maybe do some research to understand what are the needs of the consumers out there. They will probably need to bring companies like Nielsen, or maybe all of the other data companies out there just to do that market research, and help those banks understand, “Okay, these are the demographic, and therefore, these are the kind of products that they will be interested in.”
When you aggregate all of those expenses together, it’s actually quite expensive for them, for the banks, to get the acquisition for one customer because as you know, even when you attract people that are interested in your business, it doesn’t necessarily translate into them buying or wanting to pursue that service. For that particular reason, the banks want to entice you with something that it’s at 0% because as you know, we all can use some additional money or some extra money. We can use the additional money to pay for an emergency or to invest in real estate, or just to simply, I don’t know, go out and get that nice vacation that we always want to do and still have the ability to repay that vacation at a 0%. They know that for a fact, and that’s why those banks are using those 0% credit cards to attract you in order to gain you, as a consumer, and at the same time, gain market share.
2. They are trying to encourage more spending
Because if you come to think of it, even though the card is offering you 0%, there are still some additional transaction fees that go in the background. Let’s say, for example, when you go to the store and you see the machines that they use to charge your credit card payments and stuff like that, usually, those costs are absorbed by the businesses. The businesses on average have to pay a percentage and transaction fee.
Every time you do the spending, even though you’re not the one paying for interest at that particular moment in time during that initial offer, the businesses are the ones actually absorbing that cost and they have to pay for every transaction that a customer decides to pay with the credit card. The banks are actually starting to make money off of that percentage that they charge the business.
3. Ability to charge for an annual fee
Not every card in the market will charge you an annual fee. If you don’t know what an annual fee is, it’s basically, let’s say, a membership that you will have to pay in order to reap the benefits that that one credit card offers. Let’s say, for example, a credit card like Chase Freedom, it’s a 0% credit card. It gives you the ability to accumulate 1.5% in terms of points for every dollar that you spend. Those are actually great perks to have, and that card doesn’t charge you an annual fee. Let’s take, for example, another card that could charge you a $95 annual fee for having or being part of the membership with that one particular credit card.
Typically, those types of credit cards instead of offering you 1.5% in terms of points compared to the Freedom one, they can offer 3%, or they can offer 5% so that annual fees make up for the additional perks that you will get. That’s a matter of choice. Some people are okay with making just 1.5% in terms of points. Some people will rather rack up some more points because maybe they have a different plan. Maybe they have different uses for those points. If you have no idea what I’m talking about, I’m going to leave you a link down here in the description below that talks about the credit card use, how to actually build credit using those credit cards, and at the same time, take advantage of the points that you get in some of the credit cards that are available in the market.
Annual fees are actually optional. You don’t have to look for a card that charges you an annual fee, but I just want to let you know that this is one of the reasons why credit cards offer you those type of cards because rather than making money just here, they also will have the ability to make money off of the annual fee that they charge in the credit card.
4. Late fees
This won’t happen to you because you’re actually educating yourself, and you know to never be late on a credit card payments, but there are some people who sometimes they forget, sometimes they missed the due date, and stuff like that, and banks know that for a fact that some people can forget to make their payments, and therefore, they will charge you a certain amount of money and late fees. Also, they can choose to get rid of the introductory offer just because of the fact that you did not fulfill your monthly responsibility of making the minimum payment. Make sure this doesn’t happen to you. This is another reason why they take advantage of situations like this to make money.
5. Doing free research on you
Remember, the reason why I was saying that the cost of acquiring new customers was actually very expensive for those banks is that they will have to hire a marketing agency, a research company to do all the background research for them. Now, because they’re issuing you a card like that, then they can actually study your behavior, your spending, where is it that you typically go to make your purchases, whether you had an emergency and stuff like that, so that way they know, they can capture that information about you and take advantage of that situation and use it to their advantage so they can cross-sell other products that they have.
That’s another reason why they offer you a 0% credit card. Let’s think of it this way. Not only they’re actually saving money in terms of marketing, they’re actually saving money in terms of the cost that they will have to incur to acquire a new customer. At the same time, they’re using that as a way to propose other products that are actually going to complement what you’re seeking to do, whether it’s to finish paying off that emergency that you’re looking to get rid off, or maybe to use it and invest in real estate. Or just simply use that money and start a business.
If you come to think of it, this is a practice that has been around for a long time. Let’s say, for example, I’m sure that you have received in the mail at some point in time, and I’m sure you’ve been exposed to this type of practice from the banks because, at some point in time, you probably receive a card either from Chase or from Wells Fargo or any of those banks, saying something like this. If you open a checking account with us and deposit $1,000 within the first three months, we will give you $300. That, in essence, if you come to think of it, $300 might sound like it’s a lot of money for you, and in essence, you might probably be thinking, “Why would they give me $300? That’s actually money. Nobody gives money away for free.”
That free money that they were giving you, that $300 that they gave you in your checking account, it’s actually opening up the door for them to introduce other products like additional 0% credit cards, or the possibility to apply for a HELOC, which I’m sure some of you have received in the mail. I’ve certainly received a lot of offers from Chase and from other banks where they’re saying, “Hey, we know you have some properties. What about you take advantage of this introductory offer that we have, and you get a home equity line of credit with us, and that way you complement your spending, you can get that additional money that you were seeking for, and then use it for other purposes, whether it’s vacation, whether it’s expanding your real estate portfolio, and stuff like that.” They use that to cross-sell you any of the different products that they have available in the market.
If you don’t know what a HELOC is, do not worry. I’m going to leave you a link down here below just so you can actually check it out and learn more about the subject.
We have free research, we have the ability to cross-sell. This one actually left it for last because I find this to be very important. We’re all of those we know that the banks are, in fact, in the business to make money, so they want to make money off of you.
7. They want to make money off of you and interest
Because it has been proven that those who are actually irresponsible managing their money, there’s no way that they’re going to finish paying off that debt that they’ve wrapped up in six months or nine months or 12 months or 18 months, or whatever the timeframe that is. That’s not going to be you because you’re watching this channel and you’re educating yourself.
Most people, those who are not financially literate, those who don’t really understand how bad the damage is because they’re choosing not to pay that credit card in the next amount of time, then they know that eventually, the banks know that they’re going to charge some money and interest. That’s not going to be you because, once again, we’ve talked about how to actually manage good debt versus bad debt. If you have no idea what I’m talking about, don’t worry. There’s a video down here below where you can actually check it out and learn the differences between the two.
Let’s say, for example, if you’re racking up a certain amount of money during this introductory time frame one. You want to make sure that you either pay off the debt in this amount of time, or you at least reduce it for as much as you can with something that it’s going to bring you a passive income. Don’t spend money just so you’ll have to work extra hard to pay it off. Do use the flexibility of the money that you can get from those 0% credit cards, and invest it in something that’s going to give you passive income. That could be either real estate, that could be in a card that you can use for Uber or something like that, or maybe on a business that eventually is going to give you a return so you can leverage that money and use that to reduce this debt.
RESOURCES & LINKS MENTIONED IN THIS EPISODE:
– Credit Cards: Recommended https://go.www.novariseinvest.com/credit-cards
VIDEOS COMPLEMENTING THIS ONE:
– How to Improve Your Credit | 2020 Tips: https://youtu.be/eOx82LBo14g
– How To Get The Funding For Real Estate | Module: 4 https://youtu.be/Ujh2zppKu1Y
PLAYLIST COMPLEMENTING THIS ONE:
– HELOC Playlist: https://www.youtube.com/playlist?list=PLbg0ENts-e2trQMu4N7Xt_t0CWzRYeX6v
– All About Business Credit Playlist: https://www.youtube.com/watch?v=dVtOEoKP8b4&list=PLbg0ENts-e2sznkpSyI-K9-rRcE3JppZh
– Going From 0 to 24 Properties Playlist: https://www.youtube.com/watch?v=Z2yubZzAIFI&list=PLbg0ENts-e2uUWnT-xF_fOk0ygj-pXXHN
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