Just when you thought it was safe to go back in the water…
Last week, we reported that the incentives banks were using to lure consumers back to credit cards for the holidays – such as signing bonuses and millions of mail outs – seemed to be working for the good of everyone. Cash-strapped Americans who had previously been choking the economy by refusing to spend were finally circulating their money again. Confidence was being restored in lenders. Card use had increased by 6% overall. Things were looking up.
But we were giving banks a little too much credit. According to a new report by our fellow credit info-maniacs at CreditCards.com, the interest rates on our favorite pieces of plastic have soared to an average of 15.22% this month on the tail of the holiday spending surge. In what looks like another bait-and-switch move by the banking industry, card companies are quickly ratcheting up interest rates on locked-in Americans and overall debt levels are starting to creep higher and higher. Right now, by the way, we’re at about $64 billion.
Six months ago, the average credit card interest rate was about 14%. Though a one-point jump doesn’t seem drastic, it’s more serious than many of our readers realize. For someone with a $2,000 balance who is making payments of $100 per month, the increase from 14% to 15% interest will extend the time it takes to clear their debts by an entire month.
Some of you might be thinking, “That’s a pretty wimpy amount to put towards your balance every month. A responsible consumer should pay it off much faster than that.” We agree with you. However, it’s important to realize that many of the consumers that card companies have been targeting are subprime borrowers. These people have low-paying jobs and live paycheck-to-paycheck. They tend to lean on credit to keep themselves financially afloat, and as a result they often find themselves accruing large balances without the ability to pay them off. Recently, 418 million of them received offers for new cards in the mail. Now that they’ve signed up, banks are tightening the noose.
It all comes down to personal accountability. We tend to glorify capitalism because people are free to make and lose fortunes as they please, but given that the lowest-income demographics are uniformly struggling with thousands of dollars of debt, are we really justified in holding consumers at fault? Aren’t the card companies really buying their lives, charge by charge?
For many of us, the increase in the average credit card interest rate means nothing. For many more, it means a lot. Consumers with bad credit already paid a whopping 25% APR in 2011 according to a recent survey, and that figure is only predicted to grow. Although it’s hard to sympathize with the less fortunate when banks are also slapping new fees on checking accounts and debit cards in an attempt to squeeze the middle class, we feel that it’s time to show a little unity. It’s time to write your congressperson and demand even stricter regulation in the credit industry, as per the CFPB’s requests.
We shouldn’t stand for this anymore. We don’t have to.