Mega Credit Cards

Do you have any idea just how common credit cards are? Lets take a look at a few statistics from the USA.

The average family carries a balance of between 5,000 and 8,000 on all their credit cards, depending on which figures you believe. Over 1,000 per family goes on interest every year. And thats just the average some people owe much more! Overall, Americans spend over 1 trillion every year on their credit cards, and owe more than 500 billion of it.

If debt continues at the current rate, then one family in a hundred will be forced into bankruptcy. Over 90% of Americans disposable incomes are spent paying back debts. Whatever happened to saving?

Debt Costs Everyone Money.

Literally billions of dollars are being used up on expenses that are only created because of the existence of the credit card industry. The weight of the calculations, administration and marketing needed to support the industry is immense the average American gets at least one credit card offer in the mail every day.

Thats before you take into account the burden bankruptcies put on the court system, and the cost to the government of providing subsidised debt counselling. You might also note that consumers with more debt have less to spend and when money isnt flowing, it hurts the economy. There are very few industries or people that arent hurt by debt, at least in the long run.

Debt is Much More Common Than It Used To Be.

Its not so long ago that being in even a little debt was considered to be absolutely terrible. When you wanted something, you saved up for it, and bought it once you had enough money. If you had bad credit, you couldnt get a credit card at all. Go back fifty years and consumer debt figures were absurdly low, the same way they are today in most of the non-Western world.

In the West, though, the art of saving seems to be a lost one almost no-one is saving enough for their retirement, and banks are having to offer ever-higher interest rates to get people to put money anywhere near a savings account. We have an I-want-it-now consumer culture, and were willing to pay more than we can afford to fund our lifestyles.

Spending Isnt To Blame.

Now that Ive said that, dont think that the reason youre in debt is that you havent spent your money cautiously enough. According to statistics, it is very rare for people to get into debt because they spend their money frivolously. Far more people get buried in debt because they lose their job, or get sick they take out credit cards to pay for basic expenses, and fall into the interest trap. Their debt spirals out of control from just a few thousand dollars borrowed to pay for essentials.

Most people have a reasonable sense of what they can afford, and wont go out and use credit cards to buy things that they wouldnt usually be able to pay for. The problem is simply a matter of people leaving their balances on credit cards for too long, not realising just how high the interest really is.

The credit card industry is a competitive one; all you have to do to see that is open your mailbox. For many consumers, pre-approved credit card applications can be found every week in the mail, often accompanied by offers to let you transfer an existing balance from another credit card at a low interest rate. Sometimes these rates, known as “teaser” rates, can run as low as 0%, which can make applying for one of these cards rather tempting. Be careful, though. The fine print in the terms of agreement on those cards could hide some very expensive surprises.

Here are some things to watch out for in the fine print when you apply for a card with a low-interest introductory offer:

Default rate – How high can the interest rate go if you fail to make a payment on time? This is known as the “default rate.” If you pay late, your 0% or 3% interest rate could rise to 30%. Make sure you know.

Duration of the low rate – How long does this “teaser” rate apply? Six months? Until you pay off the transferred balance? Make sure you find out, as these rates often rise to the regular rate that applies to the card after some limited period of time.

Other debts – Does this card agreement have a universal default clause? Many credit card companies will now raise your interest rate if you make a late payment on any bill, such as a telephone bill. Credit card companies claim that paying any bill late makes you a higher risk customer. You don’t want your interest rate to rise because you forgot to pay the cable TV bill, so read your terms carefully.

Other charges – These “teaser” rates apply only to transferred balances; they do not apply to new charges. If you use the card to make purchases, those purchases will accrue interest at a higher rate. When you make payments, the payments will be applied to the portion of the balance with the lowest rate first, meaning that these purchases could be accruing interest at the higher rate until you pay off your balance completely.

Any reason, or none – Most card agreements permit the company to raise your interest rate at any time, for any reason. All that is required is two weeks’ notice. Keep this in mind if you are transferring a large balance that may take you several years to pay off. Sometimes, “until you pay off the transferred balance ” only means until someone at the corporate office changes their mind.

As long as you are aware of the terms, these teaser rates can be quite helpful. If you pay late or fail to read the fine print, you could find yourself paying a lot more in interest. Read the agreement before you apply for the card.