Today, I finally did what I planned to do for such a long time. Read my credit card agreements. So here is what I learned.

First, if you do not pay your credit card on time, they will severely punish you. This is no joke. Many credit cards will charge you a 24% annual interest rate. This is much much much higher than any yield. Even the very best investors have trouble generating two digit return consistently overtime. Also, using the rule of 72, the amount that you owe will double in three years! So always pay your credit card bills on time. If you are late, then pay as soon as possible because credit card companies charge you a daily interest (annual interest/ 365). Also, if you cannot pay immediately, try to refinance it using other sources of financing such as Lending Club, which has a much lower interest rate for borrowers with good credit.

Second, if there is a problem with the credit card company, you have to go to arbitration. Arbitration may seem reasonable given that there are many frivolous lawsuits and that litigation is costly. However, arbitration limits other ways to contend wrong-doing such as class action suits. Also, it is likely that arbitration favors credit card companies as they are paid by the credit card firms. So if there is a serious issue with your credit card then things will probably be stacked against you.

So what can be done? First, be wise when using your credit card. It is not a giving tree but one of those vines that can really strangle you. So do not abuse the plastic. Just use when it is needed. And pay everything off on time. Second, make sure you check your credit card statement and ensure that everything looks fine. Also, you may not need to prepare for the worst but be wary that the odds are stacked against you.

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