Apr 28 2009

Credit crunch could keep people in debt longer


It seems as if the ‘credit crunch’ is officially upon us. According to this story in the Post-Gazette, credit card companies are raising interest rates, reducing cash-back rewards programs, and lowering credit limits.

I can see why they are cutting back rewards and lowering credit limits … but increasing interest rates? That’s just going to send more people into default.
If people are struggling to pay their credit card bills as it is, raising their interest rates will only keep them in debt longer. Maybe that’s the credit card companies’ intention, as they’ll get more money out of the person that way.
The article states that credit card companies are required to tell you how long it will take you to pay off your balance if you continue to make only minimum payments. Is this a new thing? I don’t recall seeing it on past bills, but I haven’t used my card in quite awhile so I can’t say for sure.
Depending on your interest rate and your balance, there is a point at which if you only make minimum payments and never charge another dime, you’ll never be able to pay it off.
I’m pretty sure we were once at that threshold, but fortunately we were able to start paying much more than the minimums.
I’m glad I don’t have credit card debt, and I hope to never again. 

If you use credit cards, are you seeing your terms change?

Posted under Uncategorized | 9 Comments »

9 Responses to “Credit crunch could keep people in debt longer”

  1. I’m with you, Kacie – I don’t understand raising interest rates on people who can barely pay the current minimum either. What do they think is going to happen???

  2. I haven’t seen any changes to my current cards, but they also haven’t carried a balance since last December.

    I did experience a random interest rate hike once, though. Two years ago I had two cards with a combined total of about $5,000 charged on them (yikes). I had never missed a payment on either card, but I received a letter saying that a routine credit check had led them to DOUBLE my interest rate. My credit to debt ratio was pretty high, so I assumed that’s what had led to my lowered credit score.

    It didn’t make any sense, though. I was in excellent standing with both of my credit card companies, always sent my payments in on time, but they suddenly decided to double my interest rate. It raised my minimum payment by $75. I was already struggling, and so now it seemed they were trying to push me toward default.

    I called to complain, and they said the only way to return my account to the previous interest rate was to close it. So that’s what I did. I know, dumb, but I was so mad that I didn’t even want an account with them. Eventually I transferred the balance to a zero interest card and paid it off that way.

    Makes no sense, though. I thought it was downright unfair to punish a responsible account holder who had never sent a late payment. Just another reason I’m glad I don’t owe those people any money!

  3. The figure I’ve read in a number of places is that if you just pay the minimum and don’t charge more you’re looking at 26 years to pay it off. Of course, this is due in large part to the fact that your minimum payment goes down every month as your balance decreases.

    I don’t have either excellent or horrible credit and I’m carrying about $6K in CC debt but I’ve noticed over the past couple of months that the rate is actually coming down! (It’s dropped at least 2%.) I haven’t looked into it, but my simplest assumption would be that the rate is tied to the prime rate, which has dropped to historic lows recently.

  4. This must be new, because I never saw anything like that before either.

    We have no credit card debt either. Just an $80 and change charge on one credit card I plan on paying off this week. No big deal, as long as I remember to do it!

  5. The credit card companies have caused many people to go into bankruptcy. I say this because they did it to me. I got over my head into debt due to family illness. I never missed a payment or made a late payment. I wanted to pay the debt I owed and went to CCCS (Consumer Credit Counseling Services) when I reached the point that I was borrowing from Peter to pay Paul. I knew that my days were numbered. I wanted to keep my good credit rating (FICO score) and do the right thing by paying my debts. The credit card companies would not work with me, even through CCCS. The CCCS worker told me that they might be more willing to work with me if I were behind on my payments. She suggested that I seek legal advise and that bankruptcy might be my only option.

    This all happened in 2005. I left CCCS that day very discouraged. I stopped paying on my credit cards that very day and left my $42,000 a year job a few months later at the end of December 2005. I think that I became so discouraged/depressed that I just couldn’t think straight. After all, if CCCS couldn’t get them to budge what choice did I have except bankruptcy!

    The end of 2005 is when the new bankruptcy laws went into effect. The credit card companies became arrogant. “Pride cometh before the fall”! They seemed to have the upper hand. They didn’t think it through! They set up their own customers for failure. This started a snow ball effect that grew out of control! Now we are all paying a dear price. Of course, THEY are getting bailed out.

    Did I make the right decision in 2005? Looking back it seems as if there should have been a better way. I still don’t know what else I could have done. They would have garnished my wages and I could not face that humiliation at work. I was with that company for 15 years and desperately needed to keep my job. I turn 60 this year and my retirement years will be very poor indeed. I will have food and shelter but little else. I so wanted to travel. But, alas, not an option now.

    Would I do it again (get into that kind of debt) – in a heart beat if that was what it took to save my Granddaughter’s life and take care of my disabled son while waiting for his Social Security disability to be approved.

    On a final note, I want to say that I am so thankful that my Granddaughter is alive today. She almost died from a heart defect that required a medical procedure to correct. You can’t put a price on a life. I am also thankful that my son is doing better and living indepently on his Social Security Disability.

    Even though I am facing bankruptcy (I haven’t filed yet) and my future is bleak in some ways, I have so much to be thankful for. I am, for the most part, healthy and you can’t put a price on your health. I have a roof over my head and good food to eat. I am warm in the winter and cool in the summer in a home that offers climate control at an affordable price. I have dependable transportation and can travel to a church of my choice and worship as I desire. I, obviously, have a computer and internet access. I have television with cable. I have far too many blessings to even mention. Most of the world would consider me wealthy! Therefore, I am truly thankful! Sometimes, you just have to put things into perspective!

  6. Nice article. See The fact of the matter is that credit card companies are “for profit organisations” and they are scared in these difficult times , hence want to squeeze the max out of the customer who are likely to pay,by increasing the interest rate . For those who are less likely they are reducing the limit or closing the card itself. Desparate measures to keep the book in shape by comanies. The onus now is on customer whether he wants to apy high interest or not.

  7. I was so mad whe Capital One raised my rates by 300% for no reason at all, other than the fact that they legally could. It is stupid that the taxpayers are giving these banks billions in interest free dollars, then the banks are jacking up rates, even on good customers. Sorry to rant!
    Nice post all around,

  8. Although I never use my BoA credit card, I just got something in the mail yesterday notifying me of changes to their charges for certain transactions like cash advances, etc. Fortunately, I NEVER use these types of transactions, but there definitely is a change in the wind. Also, I wanted to mention, since you said you don’t use your credit cards, I recently asked a question on Ask Mr. Credit Card regarding how not using my credit card might actually hurt my score and he dedicated an entire post to my question. Here’s a link to the answer if you are interested, but in short he explains that using a Power of Small approach, charging and paying off tiny amounts each month is better than letting your account remain dormant: http://www.askmrcreditcard.com/creditcardblog/should-you-use-your-credit-cards-if-you-want-to-raise-your-credit-score/comment-page-1/

  9. Kate,

    Because I want to play the ‘credit score’ game soon and potentially get a mortgage, my credit score is important to me. Right now, it’s good enough and still active since I still have a car loan. But once that’s gone, if I don’t already have a mortgage then I’ll probably pay my car insurance or something with a credit card and then pay it off in full.

    It’s annoying that to have a good credit score, you have to use credit. But, since I want a good interest rate on a mortgage and I want the lowest rates on my car insurance, etc., I’m just going to have to play their game, but by my rules.

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Hey! I'm Kacie, wife and mother of 3. I write about my family's finance: how we save money, improve our spending, and plan for the future.

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