25
Jan
2008
Prepare For Your Credit Card Interest Rates To Jump Without Much Notice
Posted by Steve Rhode as Beware, Credit Cards, Money Management
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With banks scrambling to find new ways to refill their vaults because of all the money they lost in the greedy subprime meltdown be prepared for your credit card interest rates to increase.
While interest rates are coming down and people with manageable debt still have choices and options, those people carrying balances on their cards are prime targets and ripe for the picking by banks to raise the interest rates on those current balances.
Follow along for a minute. The bank goal is to get you in a position where you are unable to pay off the balance in full on a monthly basis. Once they’ve got you trapped then then can pretty much do whatever they want to you because they know they gotcha.
The first instance I heard about this was from our old friends at MBNA / Bank of America and their FIA Card Services wing. Apparently customers are receiving notices which raise their current balance interest rate from 7.99% to 21.99%. Nice!
Now, if you were a bank and wanted to squeeze some more juice out of your customers that were trapped, what would you do? You already know that those with higher balances are probably not going to be able to pay off those cards in this confusing economic environment. You also know that the number of people carrying a balance from month to month is above 50% of your cardholders.
What the banks will probably say is that the higher interest rate is for your protection as an incentive to pay your debt back faster.
And let’s not forget the byproduct of an interest rate increase, either your monthly minimum payment is going to increase or far less of the minimum payment will actually go towards reducing the debt.
For people that are already finding it difficult to deal with escalating life costs like fuel, heating, electricity, etc. What does increasing the interest rates accomplish? Hum, how about this, more profit on the bank books now to offset losses.
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Steve
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One Response
Reese
January 25th, 2008 at 5:56 pm
1Hi Steve,
I’ve read some of your cc stories for a couple of months now but have not commented until now.
If credit card companies and banks are evil, why do we not ‘ban’ them?
Would you propose that such companies make their credit available to people, for ANY REASON (versus, say, the Kiva style which works on business proposals and building economies) at super low rates?
Would the companies not simply fly the coop and go into another money-making business?
I’m bothered by the overriding theme in some entries that those who get into credit card trouble are ‘victims’ of credit card companies. While I’m not touting the cc companies as ethical by any means, how else will people pay for things they want if no credit were available?
Let’s think about that for a moment. No bank loans (except mortgages), no credit card companies.
What would people DO? What would our world look like?
I ask this because I see the choice to use a credit card as just that–a choice. I don’t buy the notion that people’s hands are tied into HAVING to use credit to pay their bills.
If we did not have credit, how would they pay their bills and consume? Would they find other ways to make ends meet and buy THINGS? Are credit card companies to blame for the desire to have a ‘comfortable’ life and ‘things’ in that life? Or are they a vehicle that fuels an addiction?
It is similar to, say, drugs. The ‘availability’ of drugs does not force a person to become a user–they make a choice as to whether they will use or not. And so it goes with credit. Were credit not available, what other choices would people make? Would we see a debt-less society? And if the answer to that is yes, then the problem lies not with the availability of credit but rather how it is utilized by people.
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