Credit card debt is a big problem for millions of people throughout the country. There are people who buy things with a credit card that they cannot afford to pay for. This results in them getting into very serious financial trouble. Renaud Laplanche is a person who knows a lot about personal finance. This is because he has been responsible for founding two very successful companies that are in the fintech industry. He has been speaking out recently about the dangers of credit cards and why they need to be avoided. Here is what Renaud had to say in a post he made on Medium.
Credit card companies make the vast majority of their profits when people are unable to pay off their balance. Carrying a balance on their credit card means these people will need to pay interest. The interest rates that are charged by credit cards will vary greatly. Some cards are much higher than others. There are cards that charge as much as 24 or 25 percent interest. Even people with very good credit pay an average of 16 percent interest if they carry a balance. Most of the major credit card companies would go bankrupt if people did not pay interest by paying off their balance each month.
Renaud Laplanche believes that high interest rates are not the only problem that credit cards present to the people who use them on a regular basis. For example, these companies charge their customers fees for a variety of things. These fees are another big part of the profits that are generated by credit card companies. Balance transfer fees are a very big source of revenue. Late fees are commonly charged when a minimum monthly payment is not paid by the deadline. There are also annual fees that are charged buy some credit card companies to all of their customers. Renaud suggests you carefully read the fine print before you sign up for a credit card. It is important that you know the fee structure of the company you are doing business with.
Incentives are a trick that Renaud Laplanche says credit card companies use to attract new customers. For example, it is common for credit card companies to offer rewards like cash back or bonus points if you use your card in certain locations. Basically, the company is encouraging their customers to use their card as much as possible. Renaud says that is because they want people to have high balances that they are not able to pay off when they are due. This will result in the company being able to charge interest. Everything that credit card companies do is aimed at getting their customers to pay interest or other fees.
Renaud Laplanche firmly believes that young adults should require mandatory financial counseling before being able to enter into an agreement with a credit card company. He feels that teaching young people how to use a credit card responsibly would prevent them from making mistakes that get them into perpetual debt.