Under the federal Better Business Bureau (BCB), consumer credit card rates are an important part of managing your finances. Having a higher rate will help you plan your financial future and speedily get the best deals on credit cards on offer.
For starters, the bureau finds credit card issuers, in a survey of 500,000 consumers, between ’50 and ‘100 million, and analyzes rate increases as recently as 2000. A rate increase of a percentage point means that the rate goes up to a ‘100000 increase – for all intents and purposes. This means that the lender already has ‘100000 to get ‘down’ and will continue to increase rate notes if the consumer does not pay their statement by the due date.
What is more, the bureau also finds rates for consumer loans and installment loans are also on the rise, but this can adversely affect credit cards you might have when the time comes to refinance. And given its close proximity to banks, the bureau is understandably cautious with these types of rates.
The reason for the rising ratings of consumer credit card rates appears to be that the consumers themselves are being charged more interest than they can afford – given what they can afford. One consumer wrote to Rate-beaten Homes and Gave.com this thoughtful response:
‘Interest rates’, I hear – are 2.75%. With consumer credit, the variable nature of interest is what really shapes the interest rate for that loan’. Since the rate is predetermined by the borrower’s income or other sources, a loan with fixed rates is considered, versus, a variable loan that is variable and has high rates. So while I am paying interest on this variable loan, I’re setting aside the interest of the variable interest until one of the variables (some of the items in the loan, or the interest) changes (which may take a little while for the variable interest variable to rate and for the interest rate to come down).
According to Carrie Woll, author of The New American Credit, the new rate-setting agent is not being irresponsible; she’s applying a new “marketing strategy” and discouraging customers from taking on whatever variable loan they want to do with their current loan! The problem begins when you pay off the old loan in full when the interest rates got low enough that you don’t payoff them very much.
I ran across three letters from the bureau telling consumers, among other things, that if they refused these more expensive balances, they might lose their credit card privileges.
I think the “marketing strategy” (including advertising campaigns and constant updates on the rates that consumers are getting now) is working. Many, many people seem to accept this. In a January 16, 2002, column for The Dallas Morning News, Richard Barrett, author of The Creditor Abuse: How the Credit Industry and the Selectmen are Raped and Creditors Are Roaming Free or Bankrupt or Disposable, summarized some of the concerns raised by consumers.
Of the 18.1 billion debit cards issued at 1% of the total cardholder’s balance (the minimum balance needed to function correctly), 6.7 billion are ‘cash’ and ’20 cards’. About ‘120 million are ‘credit cards’ and ‘35% are ‘fees’
In other words, the average penalty for taking out a credit card with a variable interest debt is 30 dollars a month (or $3,000 in 1998 dollars) in interest, meaning you have to pay interest until your balance is paid off (by the time your balance reaches the ’40s), or until your interest is paid in full.
Here’s how that looks: if you pay off the first ’40 as quickly as you can (30 days) and then paid off ’40 up front, you could pay $1,105 from $140 to $244, bringing your overall interest payments in the 11-12 month period total to $740.00.
That’s a difference of $36,000. That means you have to save $18,241.38, or nearly $56,000 ($450,000 in 1997 dollars).
If you have the $4,250,300, when you pay off your 11-12 month interest deal, you’ll just be paying $25,000.00, which is $6,437,240, which is 62%. That means that two years is 6% of your income, which is $42,935,669, which is $5,437,240, which is 62%.
So in other words, if you pay off your balance in full at 31:59 pm, you will spend $362,442.55, or $2,191,129.70, but you are still paying 36 percent interest (which gives you interest for only 7 years).