Your Credit Cards Need £1 Billion!

With bad debts on the rise, credit-card firms are hunting for ways to boost their profits. Here are ten tricks to watch out for.

According to the "Precious Plastic 2007" report released yesterday by accountants PricewaterhouseCoopers (PwC), the average revenue per credit card has halved in the past five years. So, watch out, because credit-card issuers have plans to put cardholders under pressure!Credit-card firms have had to contend with three profit-bashing problems this year:the growing number of 'rate tarts' who surf their debts between credit cards which offer introductory 0% deals on transferred balances (PwC estimates that these deals cost card issuers £600m a year);rising bad debts, as over-stretched borrowers struggle to meet their monthly repayments in the face of ever-rising household bills; andbeing forced by the Office of Fair Trading to reduce their fines for late and missing payments and unauthorised borrowing; almost to a company, they lowered them to £12 per offence from the previous £20 to £25.To recoup £1 billion of lost revenues means making an extra £32 a year from the UK's 32 million credit-card holders. Here are ten tricks that plastic providers may use to soak more money from their customers (in alphabetical order):1. Annual feesWhenever credit-card companies are worried about falling profits, they dig up that old favourite, the annual fee. And whenever a firm reintroduces annual fees (as MBNA did selectively earlier this year), people desert it in droves. Then again, credit-card companies aren't bothered if they lose customers after introducing annual fees, because many of these defectors won't be making them much money anyway.So, keep a close eye on your monthly statements (and those annoying little inserts packed with small print), just in case a card company decides to spring a £10+ annual fee on you!2. Higher fees for cash withdrawalsRULE ONE: Never use your credit cards to withdraw cash.RULE TWO: See Rule One.Got the message? If you use a credit card to withdraw cash, not only do you pay sky-high interest rates, but you also lose your usual interest-free period and pay a steep withdrawal fee. Typically, this fee comes to 2.5% of the amount withdrawn, with a minimum charge of £2.50. No doubt we'll soon see some providers whack this up to, say, 3% and £3. Thus, stick to withdrawing cash from fee-free cash machines using your debit card.3. Higher interest ratesRising interest rates have definitely been on the cards (pun intended) this year. As I explained in this article, in response to the Bank of England raising its base rate to 4.75% a year in August, a slew of card issuers upped their interest rates for purchases and/or cash withdrawals. Expect more of the same in response to last week's base-rate rise to 5%. Indeed, I predict that, fairly soon, the average standard interest rate on a credit card will exceed 16% APR, or more than three times the base rate. Nice work if you can get it!4. Higher premiums for payment protection insurance (PPI)Payment protection insurance is the biggest financial rip-off ever invented -- and that goes double for credit-card PPI. As I warned in this article, this cover is ludicrously overpriced: a monthly payout of £100 while you're off work means paying monthly premiums of between £7 and £30 a month. This is daylight robbery, but I'm sure that some firms will continue the ongoing trend of hiking PPI premiums in order to boost their profits. My advice: cancel this rubbish today!5. Introducing yet more paid-for add-ons, bells and whistlesI really dislike sales calls from credit-card companies desperately trying to flog additional financial products, such as PPI, card protection plans from the likes of CPP and Sentinel, and other overpriced tripe, including unnecessary insurance against identity fraud.Just yesterday, a card company offered to sell me a card protection plan, happily telling me that "this valuable protection covers all your credit and store cards, yet costs just £29 a year". I turned down this generous offer, explaining that the true cost of this cover is perhaps £3 a year, and I don't like paying ten times as much as I need to for anything, especially something that I don't need or want. I'd give these products a miss, if I were you!6. Larger balance-transfer feesOn Christmas Day, 2000, online bank Egg launched the UK's first 0% balance transfer, which allowed customers with credit-card debts to enjoy a six-month breather from paying interest, simply by transferring their existing balances to an Egg Card.These days, dozens of credit-card companies fiercely compete for balance-transfer business, with billions of pounds switching between cards every year. However, in order to stem the losses created by offering interest-free credit for up to a year (or even eighteen months, on occasion), almost all balance transfers now come with fees attached -- and I expect these fees to continue to creep up.For a balance transfer lasting between six months and a year, you can expect to pay a fee of 2½% to 3% of the value of each transfer. What's more, only a few firms cap their fees at, say, £50; most impose no upper limit on transfer fees. Hence, a single transfer of, say, £5,000 could incur a fee of £150. You can learn about the exact impact of these fees in Beware Of These 0% Card Tricks.7. Lower cashbackAs a reformed 'debt addict', I use my credit cards very, very carefully. In fact, my wife and I put all of our spending on my Best Buy cashback credit card and I then pay off the entire balance each month. By spending upwards of £1,000 a month on my card, I earn around £10 a month in cashback.For example, in July of this year, I received a cheque for £115, representing the cashback that I'd accrued over the previous twelve months. To me, this is money for old rope, so if you are a disciplined card player, earn as you spend with a cashback credit card. However, as the card companies tighten their belts, cashback rates could be reduced in the months ahead, so watch out for cutbacks.8. More costly overseas transactionsWhen you spend on a credit card abroad, or pay for goods in a currency other than sterling, almost all card companies charge you an additional 'currency conversion fee'. Typically, this adds 2.75% to the cost of goods, which comes to £5.50 for every £200 that you spend.Again, an easy option would be to increase this charge to, say, 3%+, given that few people actually notice this extra cost on their statements. My answer is simple: when you're shopping overseas, pay with a card which doesn't levy these foreign-currency fees, such as those issued by Nationwide BS and the Post Office.9. Shorter interest-free periodsIf you always pay off your monthly card bills in full, you benefit from an interest-free period which typically lasts for between 45 and 59 days. However, customers who do so are very unprofitable (banks want borrowers, not sensible spenders!), so some card issuers will look to cut their standard interest-free periods. Actually, Barclaycard did this at the beginning of this year, as I explained in Another Crafty Card Trick. Hence, a precedent has already been set for other card issuers to follow, so watch this space!10.Withdrawal of loyalty and reward programmesRather than earning cashback as they spend, some people prefer to use their credit card to build up other valuable rewards, such as Airmiles, Nectar points and other points-based rewards. For example, with Christmas on the horizon, the Amazon.co.uk credit card is particularly popular. Although pruning these schemes may upset customers, they are an easy target when costs need to be cut. Hence, some of these schemes may become devalued over time, so grab your rewards now while you still can!That's it from me, apart from one final piece of advice: if you can't keep your spending under control, or are already battling with hefty debts, it's time to cure yourself of credit-card mania. Instead, learn to love your debit card!More: Find great credit cards, current accounts, mortgages, personal loans and savings accounts via the Fool!