The Credit Card Trap
There are some 1.2 billion credit and retail cards in use in North America . The average American household is solicited seven times a year by credit card companies. ( 26) Consumer credit in the United States (revolving credit such as credit cards) rose at a seasonally adjusted annual rate of 2.5 percent in February 2004, following a huge 9.5 percent increase in January, the Federal Reserve reported recently. The February increase pushed total consumer credit outstanding to a record $2.02 trillion, up by $4.2 billion from January. At the end of 2002, American households owed an average balance of $8,940 and Americans paid finance charges on an average balance of $7,286, making the cost of credit card debt for the average household slightly above $1,000 per year. Approximately half of all credit card holders pay only their minimum monthly requirements. ( 27) Moreover, personal bankruptcies hit a record high in 2003, according to the American Bankruptcy Institute, and credit-card delinquencies hit a record high in the fourth quarter of 2003, according to the American Bankers Association. ( 28) The $750.9 billion in credit card debt that consumers owed at the end of 2002 includes $660.9 billion for bank credit cards (VISA, MasterCard, American Express, and Discover) and $90 billion for retail credit cards (store cards, gas cards, etc.). ( 29) This report includes a survey of 13 bank-issued credit cards and lists their Annual Percentage Rates (APR) and fees for services such as cash advances and balance transfers. The APRs of the cards surveyed averaged 12.82% and ranged from 6.9% to 19.99% and the fees for cash advances and balance transfers are calculated as percentages of the amounts of the advance or transfer and are typically 3%. This report also includes a survey of 13 store-issued credit cards. The average APR of the cards surveyed is 20.2% and the APRs ranged from 16.55% to 23.85%. According to Bankrate.com, consumers who have a $2000 balance on their credit card with a 13% APR and pay the minimum monthly payment, will take 166 months (almost 14 years!) to pay off the balance and will pay $1,350.60 in interest. Consumers with the same $2000 balance on a credit card with a 18% APR who pay the minimum monthly payment will take 222 months (18 ½ years!) to pay off their balance and will pay $2,615.43 in interest. ( 30) Those disturbing calculations make it easy to see how many Americans fall into a credit card trap each year. ATMs—Always Taking Money | Debit Card Confusion | Pre-paid Cards—The Priciest Plastic of All |
The Credit Card Trap
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