By Christopher Beard
Credit card use has continued to grow in leaps and bounds. From 1996 to 2005, the total number of bank credit cards almost doubled. In 2004 alone, credit card companies generated $43 billion in fee income from late payment, over-limit, and balance transfer fees. The Federal Reserve reports that the total US consumer revolving debt reached 2.46 trillion in 2007. This large increase in card usage has created a "fee feeding frenzy," among credit card issuers. The whole credit card industry has really evolved for the benefit of creditors in recent years, with the industry imposing fees and increasing interest rates if a single payment is late. Penalty interest rates usually are as much as 30-39%, while late fees now often are $39 a month and over-limit fees are as much as $35. If you consider how that can add up over just one year, it could be very expensive. Consider this: late and over-limit fees alone can easily rack up $900, and a 30 percent interest rate on a $3,000 balance can add another $1,000.
The bottom line is, credit card companies want to issue as much credit as possible to as many people as possible and hope you barely make the minimum payment. It is the exact same way these cash advance companies all over town work. They could care less if you ever pay it off. In fact, they do not want you to pay it off. While most card issuers claim this is the cost of doing business, consumers should not be charged excessively for small errors. Ultimately we are responsible for our own financial choices and credit purchase decisions. However its clear to see that credit card companies will continue to entice and market low teaser rate introductory offers (the bate) and make it easy for us to use the cards. This is attractive to the consumer because they can avoid waiting and have the items or purchases they want now. But what price will we actually pay for these items?
Those credit card offers just keep coming. Seems there's hardly a day that goes by that your mail box is not stuffed with some new credit card offer! But there's a danger lurking for you also, one of which you may already be painfully aware. Over use of credit cards is crippling the spending power of millions of Americans. The following is the truth about what really goes on behind the scenes at your credit card company. I suggest you go to the domain optoutprescreen right now and remove your name from these mail offers right now forever, its like the do not call list for mail offers. You do not need more than 3-5 cards ever!
Consumer debt is at an all time high. The credit card companies know this, but they keep on pushing more credit on unsuspecting Americans. The average consumer has 9 credit cards with total card balances in excess of $10,000. Over one in seven are using 80 percent or more of their credit card limit. (Source: myfico.com) Yes, there's safety in numbers, but is this a group to which you want to belong? I don't know about you, but I'd much rather belong to the "below average" customer group that has less than $1000 in credit card debt.
Credit card companies keep offering us new cards every week. Can you remember how many offers you have gotten in the last year with higher credit limits and cash advances? You know the ones with the little checks attached encouraging you to go do some shopping, what a complete waste of a tree. Basically, they insult our intelligence. Many consumers are flattered when they receive their pre-approved status with Visa Platinum, requesting they just fill out the form attached, or for quicker response fill out our quick online form for instant approval. We think we are being rewarded for having creditworthiness. The opportunity, of course, being able to spend money with the best of them and pay it back better than most of them. Stop trying to keep up with your friends and neighbors; they are probably indebted up to their eyeballs.
If you make the minimum payment due on your average balance of $2500 each month, your credit card won't be paid off for over 30%2B years! It's called "amortization," or in the case of credit card repayment, I should say "lack of amortization." In lay people's terms, this simply means, you have no real term set in order to pay this back. It's open-ended, as in Never paid off!!"
When you buy an automobile, you may finance it for five years. You know if you never send more than your monthly payment to the bank you will own that car on the day of your sixtieth payment. This is not the case with credit cards you can make the minimum payment for eternity.
Because banks know that credit card usage is at an all time high, most of them are fighting each other to get your business. Many offer promotions like transferring balances from other cards to the new card they are offering you. If you transfer balances from other cards, they say they will charge you a reduced rate of interest on those portions that are transfers. This sounds like a great deal (going from 18.99% to a promotional rate of say, 9.9%). However, most of them have a catch. For instance, if you do not charge something on the new card each and every month, the interest goes up to the regular rate of the card, or if you make one late payment, you forego the lower promotional rate, and the rate again goes up to the regular rate of the card. Beware of the "Transfer Trap." And read the fine print. The transfer may help for the short tem but all you're really doing is transferring your agony from one company to another, and avoiding the real solution; finding a workable plan that will get you debt free once and for all.
If you keep making your minimum payment, your balance will never be paid off. Have you ever noticed how, while your minimum payment due on your credit card is $85, your balance only came down a few dollars? That's because you're paying massive amounts of interest on credit cards. Even the low-interest rate credit cards don't show their payments going toward bringing down their balances. All they do is just require a lower minimum payment. Sure, this might help your monthly cash flow right now, however in the long run you end up paying through the nose. Suppose you owe $5,000 on a card with 19% interest and a 2% minimum payment. Paying just the minimum every month, it will take you 99 months--over 8 years--to pay off the debt, and it will cost you nearly $4,900 in interest payments. Doubling the amount paid each month to 4% of the balance owed would allow you to shorten the payment time to 32 months from 99 months--or 3 years as opposed to 8 years--and save you about $3,500.
Have you ever read the fine print of these tiny legal agreements that credit card issuers provide when you accept a credit card offer? Your beginning rate of 6.9% is a teaser rate. After six months, your rate will be 21%. The Teaser or introductory rate credit card has made credit card issuers a ton of money. Most consumers will never ever read these tiny legal agreements. You know the print that you cannot read without getting a migraine? Bankcard issuers design these legal agreements , with a plan to get those who do not pay more than the minimum and hope they make that little error of sitting the bill aside and accidentally paying it a little late so the rate jumps to 32.99%. Bankcard issuers say it's the cost of doing business.
So I suggest you be careful with credit. Don't use plastic when you can pay with cash, and if you do not have the money plan to do without until you do. Otherwise you may spend the majority of your life paying back what you already spent. Over the past 5 years, I have recognized these issues, which is why I wrote this special report and structured my practice around giving the most competent service possible. I hope this report has impressed upon you the need to take aggressive action to stay on top of your credit cards.
Christopher Beard is a specialist in helping people with credit issues through debt consolidation mortgages. He is the president of Trinty 1 Financial Group and works with clients with planning mortgage and insurance strategies visit his site at http://www.trinity1financialgroup.com and http://www.chap13bailout.com
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