Ever since “the great recession” hit, consumers have seen their credit card APRs skyrocket to out of control levels. For decades it was rather easy to get cards that had rather reasonable rates below 8 or 9%. But nowadays, you are lucky if you can find one that has a rate of “only” 15%. And to add insult to injury, that’s only if you have a tip-top credit score… everyone else is getting stuck with even higher tiers.
Why the gravy train isn’t coming back...
I’ve noticed some people on my forum that post messages like “My APR is high now but once the recession is over, I’m sure my rate will be much lower.” Unfortunately, this is just wishful thinking that is not based in reality. To put it bluntly, the days of cheap credit cards are gone for good.
Today’s credit world is much different than it was in 2007, 1997, or any other year credit cards were in existence. Here’s why the industry has been permanently changed:
Credit Card Reform
Make no mistake about it, the Credit Card Reform Act of 2009 was a major win for consumers. Some of the tricks and traps like double cycle billing and balance transfer bait ‘n switch offers are now illegal. But unfortunately, this also means that credit cards are now less lucrative for the banks. They are greatly restricted in when they can raise a customer’s APR, so they’ve come up with a new solution – just charging higher interest rates for everybody!
Greater Risk Control
Until the economy collapsed, banks had no logic to their lending. They would literally throw money at anyone with a pulse… they just assumed everyone would and could pay them back. Then of course, they found out the hard way the consequence of those reckless lending decisions.
Now that we’re in the post-crash era, banks are operating in a totally different way. There’s greater risk control by restricting available credit and charging higher rates. If you think this is only applicable to those with bad to average credit, think again. Even those with the best scores are treated the same. I have an 800+ FICO score and not only has the credit line on my Starwood American Express has been cut significantly, but I have been hit with a series of rate hikes – it now stands at 15.24%. Customer service told me that is the absolute lowest rate tier for the Starwood American Express, so I don’t even want to know what those with lower credit scores are paying!
Rewards & Cash Back
If you think cash back credit cards are automatically a good thing, think again. Why? Because that money has to come from somewhere and it’s coming from you. We subsidize the cost of these cash back credit cards with our interest rate payments, late fees, etc. In turn, banks actually use higher APRs to offset the costs of their reward programs.
If you think the solution is to simply find a non-rewards card to carry your balance on, good luck with that! I have done hundreds of credit card reviews and practically every major credit card on the market (Visa, MasterCard, American Express, Discover) has some sort of rewards programs. The banks aren’t going to get rid of these rewards because they help them drive up business; they incentivize people to spend more on credit cards. So these program are here to stay and you are helping to foot the bill with your high interest rates.
What should you do with uncontrollable credit card debt?
If you are buried up to your eyeballs in credit card debt, unfortunately the situation is now even harder to overcome on your own due to the higher rates you’re being charged. Eventually, you’re going to have to draw the line… are even the minimum payments too much for you to handle? If you truly are in over your head, you should probably consider getting a helping hand. Talk to Kris, the owner of Debt-Tips.com, to see what he recommends.
The above post was written by Michael over at CreditCardForum, a website for credit card reviews. Hopefully you learned a few tips regarding the ugly truth about credit card interest rates and why they aren’t going to get any better.