Credit card secrets you're not supposed to know? Which credit card is best?

The credit card industry is a hugely profitable business for banks, that’s why you see so many bank commercials trying to get you to use their cards. What do credit card companies not want you to know? Which credit card is best? And which credit card should you get -- to avoid getting ripped off?

Credit cards are a huge profit center for banks and financial institutions. Why? Just think about it, the average interest that a bank charges on a credit card is 17.65% - this is legalized loan sharking, because a bank cannot charge this kind of interest rate anywhere else. Not on mortgages or business loans. The interest you pay on your mortgage for example is a much more reasonable 5%. Business loans are 8% or so. Credit cards more than double that.

In addition, the average US household carries a balance of $7000 on their credit card. Multiply these numbers together: $7000 x 17.65% = $1235 -- This means that banks can expect $1235 per year of free income for every single person they can get to sign up for their credit card. That’s significant. That’s like getting a $100/month cable subscription fee for just giving you a piece of plastic.

But that’s not the only profit center for banks, they also rake the merchants over the coals - by taking a cut of about 2 to 4% on every single purchase you make. This is called merchant transaction fees. Merchants pay this to the credit card companies for the “privilege” of accepting credit cards from consumers. They have no choice because you would rather use your credit cards than give them cash or checks.

To make things even more unfair for you, the credit card loans and fees are set up so that once you accrue interest, it is not easy to pay it all off in one big lump sum, because you find out at the end of the month that interest is accumulating on top of interest. This is compound interest in reverse. Like I said, this is legalized loan sharking.

So I implore you to never ever keep a monthly balance on your credit card. Almost every other loan is better than a loan from your credit card company. Take a loan on your home equity. Take out a personal load from a credit union. Better yet, learn to live below your means and pay off your credit card balance at the end of every month.

If you can discipline yourself and your family to do this, you can take advantage of the banks. How? Get a credit card that pays cash back. Credit card companies will try to confuse you with their loyalty cards, points, and frequent flier miles. They also have offers like $100 to $300 if you sign up with them, or free travel miles, or other crap. Just tune these out. They are trying to confuse you on purpose. It’s to make a lot of noise, so you don’t see the real picture, and so they can seduce you to take their crappy offer.

Cash is almost always better than any other reward. Airline miles are worth about 1% of the value of your purchases, and points are rarely worth more than 1%.

I have done all the research – the best credit card to get is a simple cash back card. Specifically this one: City Double Cash Master card. This card pays you 2% in cash back. 1% as soon as you make a purchase, and 1% after you pay your bill. 2% back is the highest available cash back you can get on all purchases for a credit card in the United States.

This card is not only accepted almost everywhere, it also has no annual fee.

In addition, they have a 0% interest for 18 months for new customers. And even if you carry a balance, their interest rate is competitive, starting at 15.7%. They are head and shoulders above everybody else, in my opinion.

I have tried all kinds of other cash back cards, and this one is the best in my opinion. Nobody else that I am aware of gives you 2% on every purchase, Capital One gives you 1.5%, American express gives you 1%, and 6% on groceries, but you pay $95 per year, and it gets confusing.

Discover gives you 1% on everything and 5% on groceries and gas. This again gets confusing because you have to figure out if the 5% on groceries and gas will give you more than 2% overall.

I used to carry American Express, but after I made all the calculations, it was a wash with this Citi Double Cash card. You’re better off with a straight 2% off everything. It is simple.

Now, if your life situation is such that you have to carry a balance, then look into Penn Fed Gold Visa Card – it has an annual interest rate as low as 9.24%, with no annual fee and a 0% APR offer for new customers.

I hope this little bit of knowledge, and homework from an obsessive analytical geek helps cut through the clutter, and saves you a bundle of money.

If you found this helpful, and you want to see more of this kind of stuff, let me know in the comments below. Give me a thumbs up. I wish you all the best my friends.

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