Friday, March 6, 2009

Credit Card Interest--Where's our "stimulus" plan?

Why aren’t we seeing some “stimulus” rates in our accounts? OK, we all know it is best to not carry ANY balance, but for some people, it is simply not realistic to see their debts all paid up by the end of this month. So they are charged interest for the loan and a portion of each payment goes to interest first, then toward the remaining balance.

With the Wall Street Journal Prime Rate now down to 3.25% and the LIBOR shown on at or about 0.51%--which are typically used by credit card lenders to set their interest rates--shouldn’t we see some relief in consumer credit card rates? After all, if consumers pay less in interest, some argue, they would be more inclined to carry a balance and even do some heavier charging, helping the overall economy, right?

But the opposite appears to be happening. Banks are raising rates and converting fixed rate cards to variable, higher rates. Ellen Cannon's post on the Plastic Rap blog has more about this unfortunate trend.

And what happened to all the zero percent offers? Is your mailbox getting lonely?

Funny that lenders were ever so eager to lure cash-poor borrowers to charge to the max when interest rates were higher. Give ‘em a rate of zero for six months, then sock it to them after the balance built up by raising the rate to 9%, 12%, even 18%. Where is the love now?

Remember the old excuse for high interest rates or rate increases if you were late on a payment? “It’s because of the heavy write-offs we have for those who fail to pay their bills.” Hmmm. And WHO selected such risky customers in the first place? WHO gave them teaser rates to port their large balances over from prior lenders? WHO continued to send unsolicited cards by the millions to people who already had heavy balances?

With all the hand-wringing over the economic rescue packages and clamoring about taxpayer money going to those less responsible than we, have we forgotten how innocent borrowers have been forced to subsidize the debts of those credit card lenders for decades? It isn’t the irresponsible borrowers we have subsidized that makes us angry: it is the lenders who insisted on making responsible borrowers pay for THEIR mistakes by factoring the write-offs into OUR interest rates. They want a system where there is no risk and all profit in their credit card units. So more people will file for bankruptcy to get out of their debts when things go badly for them rather than work out repayment plans directly.

If you want to see where your cards stack up against others, use the Bankrate comparison tool. But beware: it is good to pay your balances off, it is NOT good to then close those accounts to remove the tempation to use them again. Read more about that from the Credit Card Advisor.

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