New Credit Card Standards – Not So Sweet
November 7th, 2011
You know how it is. You go on a diet –stick with it a few weeks, maybe months. Even lose weight. Then comes a birthday party, holiday, or stressful moment. Out goes the diet and on come the pounds. It’s the same with credit debt. Coming out of this recession, a lot of people were trying to reduce their dependency on credit cards and they were doing a really good job for quite a while. The recent trend is that people are relying on credit card debt again.
Credit card companies are now loosening their standards. They sweeten the deal to make it easy to accrue debt and then profit from unpaid balances. The total number of bank or credit cards issued jumped 27% in May compared to a year earlier, according to credit reporting bureau Equifax. From January and May, nearly 15 million new bank cards were issued — the highest level in three years.
Our position is that credit cards aren’t used to pay for ordinary living expenses unless the balance is paid off every month. We caution people not to use their credit card just because it’s available. Use it responsibly, preferably only for emergencies. We’ve talked about this in the past regarding cell phones, luxury items and other high end items. It’s important to be very sensitive to how much those items really cost if a credit card isn’t paid off each month. People are wasting $9.73 a day (or more depending on the payment plan) in interest payments. Americans actually added $18.4 billion to their debt load in the second quarter, a 66% increase from the debt they accumulated in the same quarter last year.
Tools like those offered by Ovation can help you understand exactly how much of that hamburger you just had to buy on the credit card is actually going to end up costing you. You can login and see how long you are carrying debt for a particular item; for example, if you’re just making minimum payments or paying a certain amount above the minimum each month. We believe these tools help our customers realize that credit cards are an expensive way to pay for something when you calculate the interest that accrues on top of the purchase price. It’s often better to wait until you can pay cash for the item.
If you find yourself falling back into unhealthy financial habits, tighten your belt again. Turn away from the sweet credit offers – like the calories in the cake you’re trying to give up, the interest will cost you more than you want in the end. By overcoming the temptation, your credit score will weigh in at a healthy level and you will have more money available to manage your budget successfully.
