Dodging the Credit Card Punishment

August 23, 2010 by  
Filed under Debt and Credit

You may have been reading about record low interest rates on mortgages and thinking “Wow, credit is cheap right now!” You would be wrong, at least as to that ubiquitous source of lifestyle support: credit cards.

The credit card issuers had plenty of time to prepare themselves for the rule changes that went into effect this weekend. In the past, a lot of their money was made by exploiting the foolhardiness of card-holding consumers, e.g., late fees and instant rate increases.

The new rules constrain somewhat the ability of banks to punish the careless credit card users. So they have resorted to making money the old-fashioned way: increasing costs for all cardholders.

In particular, average interest rates on card balances have now surged upward to levels not seen since 2001.  Source: Credit Cards Are Exception to Lower Consumer Rates

Consumers are fighting back, first by reducing the number of  card accounts kept open. This number has dropped by 23%. That’s awesome. Only 391 million more accounts to go! (Source)

If you are smart and careful, you won’t care what your card interest rate is because you won’t carry a balance. The bank may retaliate against your “pay in full” good sense by imposing annual fees on your card. Do not let that happen. Take your business to a bank where your overall banking relationship gives you the leverage to insist on a no-fee card.

We have increased our use of debit cards for smaller, routine purchases (e.g., groceries, gas), thereby giving us an opportunity to earn 3% plus on our checking account balances. If your debit card is branded by Visa (as ours is), you can increase your fraud protection by allowing the purchase to be processed through Visa’s network. Some banks do that automatically. For others, you may have to select “credit” and sign when you make the purchase instead of entering your pin. Most retailers will give you this option.

When it comes to credit cards, be the punisher, not the punishee.

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2 Responses to “Dodging the Credit Card Punishment”
  1. mbhunter says:

    First the banks were “… exploiting the foolhardiness of card-holding consumers …” with their fees.

    Now that they’re reined in, they’ve “resorted” to increasing costs for all cardholders.

    Boy, the banks can’t win at losing, can they? 😉

    This legislation is a step in the wrong direction for me. It reduces the perqs I get as a careful consumer. If there are fewer losers, there are fewer winners as well.

  2. Another Reader says:

    I think you are being unreasonable here. Banks are in the credit card business. The purpose of the business is to make a profit. The processors take their piece from the transaction fees, so there is no profit for the bank there.

    You want the bank to loan you money short term at zero percent interest and not charge you anything for the privilege just because you are a good risk. What is the bank’s incentive to have you as a customer? I can see using the card as an incentive if you do your other banking business with them. But you pulled all your money out of a card issuing bank and complained about the bank. If I were Bank of America, I might not want you as a credit card customer.

    You and I got free rides for decades because banks could afford to subsidize us when they were making boatloads of money off the balance-carrying customers. They are still making money off them, just not as much. If they want to charge an administrative fee for the privilege of borrowing money for free, you might rhink about what that privilege is worth to you before you complain about being punished.

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