What are revolving cards?
We are all familiar with traditional credit cards, but more and more banks are marketing what are known as revolving cards.
What is a revolving card and how does it work?
These are credit cards that have the peculiarity that they only have the option of deferred payment, i.e. all purchases paid for using one of them will be deferred with the corresponding interest, forcing the user to be permanently indebted unnecessarily. Revolving cards usually offer different payment options:
- Pay a fixed monthly amount. The customer sets the amount he/she wants to pay each month (for example 300 euros), regardless of the monthly expense of the card. In this way, the amount to be paid is always the same and if the expense is higher, it will accumulate in the credit available: the debt to be paid with the corresponding interest. It is necessary to bear in mind that the entities usually establish a minimum amount to pay (normally around 18 euros).
With this system, if the established quota is small, it may not even be enough to cover the payment of the generated interests, so that after the payment of the quota, the outstanding debt not only decreases, but increases.
- Paying a percentage of the outstanding debt. In this case the consumer pays each month a percentage of the credit consumed, with a minimum amount per receipt: for example, if we have accumulated in our card an expense of 1000 euros and we set a quota of 40%, our quota at the end of the month will be 400 euros, leaving 600 euros pending repayment.
This second payment system is not recommended either, as it leads to a spiral of continuous debt, in which you never finish paying: the lower the outstanding balance, the lower the installment to be paid, which unnecessarily lengthens the repayment period (and increases the interest rate).
They encourage you to use them… but do not inform you.
Banks promote this type of card to make them more and more attractive:
- They do not charge issue or annual renewal fees.
- They establish incentives for their use, such as the return of a percentage of the purchases paid (sometimes up to more than 5%).
very small installment. The result is that many users may find themselves, without realizing it, in a permanent debt spiral.
The Bank indicates that a good financial practice would be that, in cases where the repayment of the principal is to be made over a very long period of time, the financial institution should periodically provide information on how long it would take to pay off the outstanding debt by paying the fixed installment if the card were no longer used, what the amount of the monthly installment should be that would allow the outstanding debt to be paid off within a year, or examples of the possible interest savings that would represent an increase in the amount of the installment? However, these are simple recommendations, the entities are not obliged to follow them and, in fact, we are not aware that they offer this information to their clients.
Better avoid them
Our advice is clear: avoid deferred payment cards, as they force you to be indebted unnecessarily. In general, using deferred payment is an option that usually comes out very expensive, which in most cases exceed 20%, therefore, it is not a recommendable option. Nevertheless:
- If you ever have to use the deferred payment of the card, the best option (if your card allows it) is to defer only the purchase you want.
- If you do not have the ability to defer a single purchase, use the card only to pay for the purchase you want to defer and do not make any more payments with it until you can change the payment method again at the end of the month without interest.
- If you have deferred card payments, as soon as you have liquidity, cancel the outstanding debt in advance.
- If a deferred payment card offers you interesting conditions and you want to use it, do it only to pay for the purchases you want to defer, paying the rest of the expenses with the normal credit card of payment at the end of the month without interests.
In any case, it is not a good idea to use deferred payment cards to benefit from incentives such as the return of a percentage of the purchases paid with the card, because the interest will exceed any incentive.