How can a credit card company make any money off me? I have a no-fee card and pay my balance on time
Credit cards have two revenue streams: So yes, the are making money from your daily use of the card. They don't make any money off of you personally. They make money off of the merchants per transaction when you use the card.  You trigger this fee to the credit card issuer, but it doesn't come out of your pocket.  (Or it shouldn't; merchants aren't allowed to pass this fee on to you.) They keep you around because you may at some point become less responsible than you already are, and it would be quite costly to get you back (a couple hundred dollars is the cost of acquiring a new credit card customer). People who are less responsible than you subsidize your free float and your rewards (if any) but the new CARD act makes it more difficult for people to use their cards irresponsibly, so these perks that you enjoy will get less perky with time. Of course they make money. They double dip in a lot of instances they make 2 - 3% plus $0.30 per transaction from the merchant and then whatever interest you pay on your card. So let's just say in one day you make stops at Starbucks for a $4 Latte, then at Wendy's for lunch for about $8, then you put about $20 worth of gas in your tank, then you stop at Kroger for some $40 groceries and may you pick up some dinner for about $15.  That's 5 transactions at $0.30 which is a $1.50 then at 3%  starbucks is $0.12, Wendy's $0.24, gas is $0.60 then kroger $1.20 then dinner $0.45 so the total that they get is $4.11 multiply this by about  a million people per day that is about $4.1 million per day that they get. That is a nice penny! just from the merchant so you are making them a lot of money by just using it. Maybe they don't make much, but they make some for sure.  In addition to what duffbeer703 says, they also have a warm body at the end of the line and will sell your contact info (or at least access to your eyeballs) to marketers.  They stuff advertisements into your bill for example. If nothing else, you are brand value for them as they can convince merchants (who get charged monthly) that X billion people carry their card and that merchant would be missing out on sales by not accepting their product. If you have a rewards card that pays you for using it, the merchant has higher corresponding fees. "Ever wonder why certain businesses won't accept certain credit cards? (The sign above the register saying ""Sorry, we don't accept AmericanExpress""). It's because they don't want to pay that credit card company's transaction fees. One of the roles of the credit card company is to facilitate the transaction process between the customer (you) and the store. And now that using credit cards over cash or check is so ingrained in our culture, it creates extra work for the customer to make purchases at an establishment that is cash-only. Credit card companies know this, and so do businesses. So businesses will partner with credit card companies so that customers can use their cards. This way, everything is handled electronically (this can also benefit the business, since there's added security as they're not dealing with cash directly, and they don't have to manually count as much cash later). However a business may only budget a certain amount of their profits they want taken by credit card transactions. So if a company's fees are too high (say AmericanExpress, for example) and they are banking on you already having a Visa card, the company isn't going to go out of its way to provide the AmericanExpress option for you. If it were free for the business to use a credit card company's service at their stores, then they would all just provide the option for every card! So the credit card company making money is all contingent on you spending your money by using their credit card. You use the card, and the store pays the company for the transaction."
"What you are describing sounds a lot like the way we handle our household budget.  This is possible, but quite difficult to do with an Excel spreadsheet.  It is much easier to do with dedicated budgeting software designed for this purpose. When choosing personal budgeting software, I've found that the available packages fall in two broad categories: Some packages take what I would call a proactive approach: You enter in your bank account balances, and assign your money into spending categories.  When you deposit your paycheck, you do the same thing: you add this money to your spending categories.  Then when you spend money, you assign it to a spending category, and the software keeps track of your category balances.  At any time, you can see both your bank balances and your spending category balances.  If you need to spend money in a category that doesn't have any more money, you'll need to move money from a different category into that one.  This approach is sometimes called the envelope system, because it resembles a digital version of putting your cash into different envelopes with different purposes.  A few examples of software in this category are You Need a Budget (YNAB), Mvelopes, and EveryDollar. Other packages take more of a reactive approach: You don't bother assigning a job to the money already in your bank account.  Instead, you just enter your monthly income and put together a spending plan.  As you spend money, you assign the transactions to a spending category, and at the end of the month, you can see what you actually spent vs. what your plan was, and try to adjust your next budget accordingly.  Software that takes this approach includes Quicken and Mint.com. I use and recommend the proactive approach, and it sounds from your question like this is the approach that you are looking for.  I've used several different budgeting software packages, and my personal recommendation is for YNAB, the software that we currently use.  I don't want this post to sound too much like a commercial, but I believe it will do everything you are looking for.   One of the great things about the proactive approach, in my opinion, is how credit card accounts are handled.  Since your spending category balances only include real money actually sitting in an account (not projected income for the month), when you spend money out of a category with your credit card, the software deducts the money from the spending category immediately, as it is already spent.  The credit card balance goes negative.  When the credit card bill comes and you pay it, this is handled in the software as an account transfer from your checking account to your credit card account.  The money in the checking account is already set aside for the purpose of paying your credit card bill. Dedicated budgeting software generally has a reconcile feature that makes verifying your bank statements very easy.  You just enter the date of your bank statement and the balance, and then the software shows you a list of the transactions that fall in those dates.  You can check each one against the transactions on the statement, editing the ones that aren't right and adding any that are missing from the software.  After everything checks out, the software marks the transactions as verified, so you can easily see what has cleared and what hasn't. Let me give you an example to clarify, in response to your comment.  This example is specific to YNAB, but other software using the same approach would work in a similar way. Let's say that you have a checking account and a credit card account.  Your checking account, named CHECKING, has $2,000 in it currently.  Your credit card currently has nothing charged on it, because you've just paid your bill and haven't used it yet this billing period.  YNAB reports the balance of your credit card account (we'll call this account CREDITCARD), as $0. Every dollar in CHECKING is assigned to a category.  For example, you've got $200 in ""groceries"", $100 in ""fast food"", $300 in ""rent"", $50 in ""phone"", $500 in ""emergency fund"", etc.  If you add up the balance of all of your categories, you'll get $2,000. Let's say that you've written a check to the grocery store for $100.  When you enter this in YNAB, you tell it the name of the store, the account that you paid with (CHECKING), and the category that the expense belongs to (groceries).  The ""groceries"" category balance will go down from $200 to $100, and the CHECKING account balance will go down from $2,000 to $1,900. Now, let's say that you've spent $10 on fast food with your credit card.  When you enter this in YNAB, you tell it the name of the restaurant, the account that you paid with (CREDITCARD), and the category that the expense belongs to (fast food).  YNAB will lower the ""fast food"" category balance from $100 to $90, and your CREDITCARD account balance will go from $0 to $-10. At this point, if you add up all the category balances, you'll get $1,890.  And if you add up your account balances, you'll also get $1,890, because CHECKING has $1,900 and CREDITCARD has $-10.  If you get your checking account bank statement at this time, the account balance of $1,900 should match the statement and you'll see the payment to the grocery store, assuming the check has cleared.  And if the credit card bill comes now, you'll see the fast food purchase and the balance of $-10. When you write a check to pay this credit card bill, you enter this in YNAB as an account transfer of $10 from CHECKING to CREDITCARD.  This transfer does not affect any of your category balances; they remain the same.  But now your CHECKING account balance is down to $1,890, and CREDITCARD is back to $0. This works just as well whether you have one checking account and one credit card, or 2 checking accounts, 2 savings accounts, and 3 credit cards.  When you want to spend some money, you look at your category balance.  If there is money in there, then the money is available to spend somewhere in one of your accounts.  Then you pick an account you want to pay with, and, looking at the account balance, if there isn't enough money in that account to pay it, you just need to move some money from another account into that one, or pick a different account.  When you pay for an expense with a credit card, the money gets deducted from the category balances immediately, and is no longer available to spend on something else." "The simplest answer to why you can't see it in your online statement is a design/business decision that was made, most probably originally to make online statements differ as little as possible from old fashioned monthly printed statements; the old printed statements never showed holds either. Some banks and card services actually do show these transactions online, but in my experience these are the rare exceptions - though with business/commercial accounts I saw this more, but it was still rare. This is also partly due to banks fearing lots of annoying phone calls from customers and problems with merchants, as people react to ""hey, renting that car didn't cost $500!"" and don't realize that the hold is often higher than the transaction amount and will be justified in a few days (or weeks...), etc - so please don't dispute the charges just yet. Behind the scenes, I've had bankers explain it to me thusly (the practice has bitten me before and it bothered me a lot, so I've talked to quite a few bankers about this): There are two kinds of holds: ""soft holds"" and ""hard holds"". In a soft hold, a merchant basically asks the bank, ""Hey, is there at least $75 in this account?"" The bank responds, and then has it's own individually set policy per account type as to how to treat that hold. Sometimes they reserve no money whatsoever - you are free to spend that money right out and rack up NSF fees to your heart's content. Yet some policies are to treat this identically to a hard hold and keep the money locked down until released. The hard hold is treated very much like an actual expenditure transaction, in that the money is locked and shown as no longer available to you. This varies by bank - some banks use an ""Account Balance"" and an ""Available Balance"", and some have done away with these dual terms and leave it up to you to determine what your balance is and what's ""available"" (or you have to call them). The key difference in the hard hold and a real expenditure is, technically, the money is still in your bank account; your bank has merely ""reserved"" it, earmarking it for a specific purchase (and gently promising the merchant they can have their money later), but the biggest difference is there is a time-limit. If a merchant does not process a completion to the transaction to claim the money, your bank will lift the hold after a period of time (I've seen 7-30 days as typical in the US, again varying by institution) returning your money to your balance that is available for purchasing and withdrawal. In every case, any vaguely decent banking institution allows you to call them, speak to some bank employee, and they can look up your account and inform you about the different sort of holds that are on your account that are not pending/completed purchase transactions. From a strictly cynical (perhaps rightly jaded) point of view, yes this is also used as a method to extort absurdly high fees especially from customers who keep a low balance in their account. I have had more than one bank charge NSF fees based on available balances that were due to holds made by gas pumps, for instance, even though my actual ""money in my account"" never went below $0 (the holds were for amounts larger than the actual transaction). And yes, the banks usually would waive those fees if you bothered to get someone on the phone or in person and made yourself a nuisance to the right person for long enough, but they made you work for it. But I digress.... The reality is that there are lots of back and forth and middle-men in transactions like this, and most banks try to hide as much of this from you the client as possible, partly because its a huge confusing hassle and its part of why you are paying a bank to handle this nonsense for you to start with.  And, as with all institutions, rules and policies become easily adjusted to maximize revenues, and if you don't keep sizable liquid minimum balances (100% of the time, all year long) they target you for fees.  To avoid this without having fat wads of extra cash in those accounts, is use an entirely disconnected credit card for reservations ONLY - especially when you are traveling and will be making rentals and booking hotels. Just tell them you wish to pay with a different card when you are done, and most merchants can do this without hassle. Since it's a credit card with monthly billing you can often end up with no balance, no waiting around for a month for payments to clear, and no bank fees! It isn't 100%, but now I never - if I can possibly avoid it - use my debit/bank card to ""reserve"" or ""rent"" anything, ever." I do this all the time, my credit rating over time plotted on a graph looks like saw blades going upward on a slope I use a credit alert service to get my credit reports quarterly, and I know when the credit agencies update their files (every three months), so I never have a high balance at those particular times Basically, I use the negative hard pulls to propel my credit score upwards with a the consequentially lowered credit utilization ratio, and the credit history. So here is how it works for me, but I am not an impulse buyer and I wouldn't recommend it for most people as I have seen spending habits: Month 1: charge cards, pay minimum balance (raises score multiple points) Month 2: PAY OFF ALL CREDIT CARDS, massive deleveraging using actual money I already have (raises score multiple points) Month 3: get credit report showing low balance, charge cards, pay minimum balance ask for extensions of credit, AND followup on new credit line offers (lowers score several points per credit inquiry) Month 4: charge cards, pay minimum balance, discretionally approving hard pulls - always have room for one or two random hard pulls, such as for a new cell phone contract, or renting a car, or employment, etc Month 5: PAY OFF CREDIT CARDS using actual money you have. (the trick is to NEVER really go above a 15% credit utilization ratio, and to never overleverage. Tricky because very quickly you will get enough credit to go bankrupt) Month 6: get credit report showing low balances, a slight dip in score from last quarter, but still high continue. "It can be difficult when all your disposable income is spoken for.  Your options depend on how good your credit is and how flexible your expenses are.  I don't have all the answers without more details (possibly not then).  However, couple of points of advice: Paying off that credit card debt (and not adding any more to it) is your #1 priority.  You should make minimum payments to every other debt until you have done that because the interest on it will kill you in the mean time.  It is always optimal to pay the maximum to your highest interest debt and minimum to all other debts. 11% doesn't sound very good on your house loan.  You may want to consider refinancing.  That is, if you can get a lower rate.  You may also want to get a longer term loan (if you have enough discipline to use the extra income to actually pay off your credit card and then the put it toward the house when the cards are paid off). Look at options to increase your income, at least temporarily.  Second jobs and such.  When your finances are more in order, you can back off. The debt ""trap"" is behavioral.  We humans tend to increase our spending until we can't any more.  But the reason we can't spend any more is that we have increased our debt until we have no flexible income.  Then we are stuck for a long time and have few options. The only way out (long term) is to change our habits so that we don't increase spending each time we pay down a debt or get an increase to our income.  Financial discipline is the only way to have financial security.  Almost always the first step is to pay off credit cards and stop maintaining a balance (always pay off every card at the end of each month).  Then start paying off other debts from highest interest rate to lowest. This is a hard challenge and one most of us face at some point in our lives.  Good luck!" Yes, they're referring to the credit card dispute (chargeback) process. In the case of dispute, credit card company will refund/freeze your charge so you don't have to pay until the dispute is resolved (or at all, if resolved in your favor). If the dispute is resolved in your favor, your credit card company will charge back the merchant's service provider which in turn will charge back (if it can) the merchant itself. So the one taking the most risk in this scenario is the merchant provider, this is why merchants that are high risk pay significantly higher fees or get dropped. Please realize that your issuer can close the account for any number of reasons.  Inactivity is one, as having a credit line open costs them money and if you never charge anything, the company doesn't get any transaction fees from vendors nor does the company get to charge you any interest. An occasional charge is likely to keep your card from being closed automatically, but it is not a guarantee. Another reason they may close the account is that you have other bad marks show up on your credit score, or their criteria for offering you the card change so you no longer match their target demographic. I have a credit card issued by my credit union that I have not used for a couple of years. They will not close the card account because my other accounts are still very profitable for them. If I were not an otherwise profitable customer, I wouldn't be surprised if they closed my credit card account. If you are serious about keeping the account open, you should probably have more than a trivial amount of usage. "To avoid nitpicks, i state up front that this answer is applicable to the US; Europeans, Asians, Canadians, etc may well have quite different systems and rules. You have nothing to worry about if you pay off your credit-card statement  in full on the day it is due in timely fashion. On the other hand, if you routinely carry a balance from month to month or have taken out cash advances, then making whatever payment you want to make that month ASAP will save you more in finance charges than you could ever earn on the money in your savings account. But, if you pay off each month's balance in full, then read the fine print about when the payment is due very carefully: it might say that payments received before 5 pm will be posted the same day, or it might say before 3 pm, or before 7 pm EST, or noon PST, etc etc etc. As JoeTaxpayer says, if you can pay on-line with a guaranteed day for the transaction (and you do it before any deadline imposed by the credit-card company), you are fine.  My bank allows me to write ""electronic"" checks on its website, but a paper check is mailed to the credit-card company. The bank claims that if I specify the due date, they will mail the check enough in advance that the credit-card company will get it by the due date, but do you really trust the USPS to deliver your check by noon, or whatever? Besides the bank will put a hold on that money the day that check is cut. (I haven't bothered to check if the money being held still earns interest or not).  In any case, the bank disclaims all responsibility for the after-effects (late payment fees, finance charges on all purchases, etc) if that paper check is not received on time and so your credit-card account goes to ""late payment"" status.  Oh, and my bank also wants a monthly fee for its BillPay service (any number  of such ""electronic"" checks allowed each month). The BillPay service does include payment electronically to local merchants and utilities that have accounts at the bank and have signed up to receive payments electronically. All my credit-card companies allow me to use their website to authorize them to collect the payment that I specify from my bank account(s). I can choose the day, the amount, and which of my bank accounts they will collect the money from, but I must do this every month. Very conveniently, they show a calendar for choosing the date with the due date marked prominently, and as mhoran_psprep's comment points out, the payment can be scheduled well in advance of the date that the payment will actually be made, that is, I don't need to worry about being without Internet access because of travel and thus being unable to login to the credit-card website to make the payment on  the date it is due. I can also sign up for AutoPay which takes afixed amount/minimum payment due/payment in full (whatever I choose)  on the date due, and this will happen month after month after month  with no further action necessary on my part.  With either choice,  it is up to the card company to collect money from my account on the day specified, and if they mess up, they cannot charge late payment fees or finance charge on new purchases etc.  Also, unlike  my bank, there are no fees for this service. It is also worth noting that many people do not like the idea of the credit-card company withdrawing money from their bank account, and so this option is not to everyone's taste." Banks make money by charging fees on products and charging interest on loans. If you keep close to a $0 average balance in your account, and they aren't charging you any fees, then yes, your account is not profitable for them. That's ok. It's not costing them much to keep you as a customer, and some day you may start keeping a balance with them or apply for a loan. The bank is taking a chance that you will continue to be a loyal customer and will one day become profitable for them. Just be on the lookout for a change in their fee structure. Sometimes banks drop customers or start charging fees in cases like yours.