Ever wonder how credit card points actually work? And I'm not just talking about the sign up bonuses, the cash back incentives, and free flights that's advertised to you? I'm talking about the Ballers that these credit card companies just give away to you. If I learned anything in life by now, it's that nothing is free. So do you want to know the secret on how credit card points actually work and like who's paying for these rewards and how the banks still make money? Well to do that, you have to understand how our Marketplace actually works when we buy and sell Goods So more on that in a second. But first, let's talk about how credit cards work in the most basic and simplest form.

You apply for a credit card of your choice, you get approved, and then you start buying things on it. Then at the end of the billing cycle, which is usually 30 days. all of that that you've spent is now due, or you can make minimum monthly payments on the amount. The benefits of this is obviously you buy stuff now and you can pay for it later, which is actually super helpful when you're buying Big Ticket items.

Plus, the more you spend on this, the more perks you get rewards and free stuff from the credit card company for being a value customer. The cons of these is that you're paying a stupid High interest rate if you don't pay that balance off in full at the end of every billing cycle. and it's super tempting to spend more money than what you have because it's not really your money when you're buying those. But seems simple, right? We all know how credit cards work, especially if you're a subscriber on this channel, and if you're not, take a second to do so right now.

But what you might not know about credit cards is what's happening behind the scenes when you swipe this car. Well, besides the fact that the credit card company is making absolute Bank on the interest they are charging you for carrying a balance on this car, there's a lot more going on. You see: Super Credit Card Savvy People aren't paying a dime in interest when they're charging their car. So how is the credit card company making money off of these people? You see, most people think credit card companies are making enough money off the people who rack up the high credit card balances when they're paying that super high interest rate because they think this offsets the money that they have to dish out to the credit card.

Savvy people who don't pay a diamond interest. But there's another way they make money. even off the people who aren't caring about when a credit card is swiped to pay for something. the merchant is paying a transaction fee.

It's actually called an interchange fee, which is a percentage of the total sale of your transaction. And a merchant, by the way, is just a place where you're spending money. So think Starbucks Walmart Goodwill if you're in the real estate market right now and you're struggling to make a buck, but these Merchants are paying money directly to the credit card company without you even knowing. these fees are ranging anywhere from one and a half to three and a half percent of your total transaction amount.

Which sounds small, but over 50.3 billion dollars was paid to credit card companies in 2022. Alone Just from Merchants Interchange fees make up a massive portion of a credit card company's total revenue. So behind the scenes, when you're racking up these crazy credit card points, the credit card companies are also racking up a crazy amount of interchange. Revenue Like you're over here, stoked to be getting one to two percent cash back on every penny that you spend.

But the credit card companies even more stoked than you because they're getting anywhere from one and a half to three and a half percent on your transaction. Now, most people would look at this and think, well, what's the problem? The credit card company is just cutting me in on a slice of the pie. What's so bad about it? Well, ever since these cash back credit cards started offering insane rewards to Consumers Merchants have had to artificially raise their prices to be able to afford this interchange fee. Take inflation out of the equation, they had to raise prices to survive with these fees.

And let's be honest, how many people are buying things with cash these days? Actually, according to the Federal Reserve only 21 of all transactions is purchased with cash. and of that 21, those transactions primarily range under 15. So these Merchants are getting absolutely hammered on interchange fees when majority of their transactions are credit cards. If they do one million in Revenue that year, they they're paying over twenty thousand dollars to these credit card companies.

Which means you as the consumer is actually paying these increased prices and in turn these fees to the credit card company as these credit card Awards get more and more flashy. The Interchange Fee also increases, which in turn means your retail prices for goods and services will increase with them. When you think about it. It's actually like horrible.

and it's why we have an unending issue of debt in our country credit cards. Advocate and promote people spending so much money and usually it's more money than they actually have because they're incentivized to earn more rewards. Plus, you could pay off the balance over time. So what's the big deal? That's what we're always sold and all of this is happening.

while Merchants are slowly raising their prices to survive from these fees, meaning the cost of a transaction keeps increasing. which then means The Interchange fee keeps increasing. That's going back to these credit card companies. America Is all about spend spend spend because the more we spend, the more the credit card companies make money in the entire cycle.

So I mean you can really see how credit card companies are insanely profitable. The more they promote rewards, the more people spend, which in turn the more these cards end up making. Meaning they have more money to promote crazier rewards. It is the most insane vicious cycle in our society.

I Mean total credit card debt in America is over one trillion dollars. In quarter two of this year alone, one and a half to three and a half percent on that is a pretty pretty penny if you ask me. Which means people who are using debit cards or cash are getting absolutely screwed. They are losing big time because they are paying the increased prices for goods and services without reaping any of the rewards from the credit cards.

And hey, look, I'm all about it. If you can't beat them, join me. But now you know what. We have a major debt issue in our country.

It's not really that we don't know how to fix it, it's that these major corporations don't want to fix. Not to be a Debbie Downer But with all that being said, here's how you stick it to the sharks in the credit card game. This will lessen the damage on yourself as you pay for goods and services in the marketplace. One, if you can tell from this video, only use a credit card on all of your purchases.

Literally, do Not use a debit card unless the merchant requires. And then two, this is the most important thing on the entire list. Please, please please please Pretty please. pay off your credit card balance in full at the end of that billing site.

Put that thing on autopay. Treat it as if it's a debit card. Only spend what you have and that way you don't even have to treat it like it's anything different or have that temptation to spend more than what you currently have. Bottom line: if you don't have the money for it, do Not buy it.

And then three, try to avoid credit cards that have annual fees unless you're a really big baller and you're spending tons of money. a lot of people in America do not need an annual fee based credit card because they don't spend enough to reap the rewards from it. And if you need some great suggestions on which credit cards to use, then check the videos. I'll leave links in the description of this video.

I Have a plethora of great videos that break down the pros and cons to some great credit cards out there, but really, that's the behind the curtain view on how credit cards actually work in our society. Most people don't really know this stuff, so I hope you learned something new if you did. Please hit that like button. Share the video with a friend.

It means more than you know other wise. I'll see you in the next video.