I received quite a few emails after I posted the credit card article a couple of weeks ago and I said I would elaborate further, so here you go. BTW, sorry it took so long.
Americans have become addicted to "buying now" and "paying later." This addiction has caused more than 40 percent of Americans to live above their means—and credit cards are their drug of choice. And why not; obtaining a credit card has become the easiest loan to acquire. In the '90s, lines of credit were reserved for the middle-class and for those who were "financially responsible." Back in the day—if you couldn't afford it—you didn't get it. Today, credit can be had by just about anyone who can sign his name. But with decreased credit lines and higher interest rates, consumers can no longer afford for their addition.
Cost of Addiction
According to the Federal Reserve, the consumer credit card debt in the United States was more than $970 billion in the last quarter of 2008. So it should be of no surprise that 1.2 billion credit cards are used in the United States, and more than 24 percent of purchases are made using a credit card or debit card. (Resulting in an average household debt of $8,700). However, credit card debt is not just the result of compulsive spending. Some of the charges are the result of excessive penalties and interest rates. Interest is the fee charged by credit card companies for allowing consumers to use their money. When a consumer is extended credit, the interest rate is usually very low. But what most credit card companies do not share with their customer is that they can increase interest rates and late payment penalties, for new applicants and existing customers, at any time; for no reason at all.
Increasing Profits
During a recession, your credit provider has to find a way to maximize their profits, mostly at the customers' expense. Periodically, mostly during economic changes, credit providers will check the credit reports of their existing customers for any changes. If you paid a car note late, the credit company can legally hold you accountable for a financial mistake you had with another financial institution. This newfound information may deem you as a potential risk, and you may face higher interest rates or a decreased line of credit. When the line of credit extended to consumers is decreased by the credit card company, the action affects their credit-to-debt ratio; this category accounts for 30 percent of their FICO score. When debt is increased, they are now at risk of facing hidden fees, and even higher interest rates, from their other lenders.
Gotcha Fees
The hidden fees, also known as "gotcha fees," can wreak havoc on a household budget; but they are gold mines for the credit card companies. Late fees and penalties cover the cost of the customers who pay their balances in full every month. The average credit card late fee is $34; so in an effort to tempt customers to pay late, the credit companies will mail statements as close to the due date as possible.
