Consumers beware: although paying with plastic may be convenient, it comes at a cost. Compared to other loan industries, credit card interest rates remain disproportionately high.
Between 2007 and the end of the first quarter of 2012, the average interest rate for credit cards dropped to 12.34%, reflecting a 0.96% decrease. However, when viewed in the context of year-over-year inflation rates -- 2.7% in 2012 -- the decrease no longer represents a consumer benefit. On an inflation-adjusted basis, the 12.34% rate is actually more expensive than pre-2007 levels.
The decline in credit card interest rates also trails behind other lending industries. For example, 48-month car loan rates dropped by 2.7% over the same period, and 30-year mortgage rates dropped by 2.75%.
Consumer debt also remains staggeringly high. According to Federal Reserve data, consumers owed a total of $11.4 trillion in March. That figure includes debt from credit cards, auto loans and mortgages. If that debt load were divided across all U.S. households, it would average more than $96,000 per household.
Some experts believe credit cards may discourage adequate financial planning and budgeting. Consumers may not be aware -- until it's too late -- that they have exceeded monthly budgets using credit card purchases. The cost in interest of carrying over balances, as well as the stiff penalties for missed payments, can soon create unmanageable debts for consumers. In some cases, credit card rates can go as high as 33% for late payments. Higher rates may also be imposed on consumers with low credit scores or inadequate credit histories.
If you find that you are struggling with your credit card debt, a bankruptcy attorney can advise you of various management strategies.
Source: Fox Business, "Credit card rates remain stubbornly high," Richard Barrington, July 30, 2012
- Our firm handles situations similar to the one discussed in this post. If you would like to learn more about our practice, please visit our Memphis Credit Card Debt page.