Study Reveals Why Credit Card Interest Rates Remain Stubbornly High (newyorkfed.org) 124
Credit card interest rates, which averaged 23% in 2023, are significantly higher than any other major loan product primarily due to non-diversifiable default risk and banks' market power, according to research published by the Federal Reserve Bank of New York.
The comprehensive study, which analyzed 330 million monthly credit card accounts, found that while high default losses contribute to elevated rates, they explain only part of the picture. Even high-FICO borrowers pay spreads exceeding 7% above the federal funds rate. Researchers determined that credit card banks have substantial pricing power, achieved through exceptionally high operating expenses -- about 4-5% of dollar balances annually -- with marketing costs ten times higher than those at other banks.
"Credit card charge-off rates are highly correlated with default rates on banks' other loans as well as on corporate bonds," the researchers said, noting that default risk cannot be diversified away across lending markets, particularly during economic downturns. The study estimated that exposure to aggregate default risk carries a premium of 5.3% per year, which fully explains the relationship between return on assets and credit scores.
Credit cards are ubiquitous in American finance, with 74% of adults owning at least one card, and the payment method accounting for 70% of retail spending. According to the research, 60% of accounts carry balances month-to-month.
The comprehensive study, which analyzed 330 million monthly credit card accounts, found that while high default losses contribute to elevated rates, they explain only part of the picture. Even high-FICO borrowers pay spreads exceeding 7% above the federal funds rate. Researchers determined that credit card banks have substantial pricing power, achieved through exceptionally high operating expenses -- about 4-5% of dollar balances annually -- with marketing costs ten times higher than those at other banks.
"Credit card charge-off rates are highly correlated with default rates on banks' other loans as well as on corporate bonds," the researchers said, noting that default risk cannot be diversified away across lending markets, particularly during economic downturns. The study estimated that exposure to aggregate default risk carries a premium of 5.3% per year, which fully explains the relationship between return on assets and credit scores.
Credit cards are ubiquitous in American finance, with 74% of adults owning at least one card, and the payment method accounting for 70% of retail spending. According to the research, 60% of accounts carry balances month-to-month.
It's Called Greed! (Score:5, Insightful)
The ONLY reason why credit card rates aren't even higher is that there are legal limits.
Legal limits to rates however seem to be easily bypassed with "fees". See payday loans and that "buy ow pay later" shit that they've recently relaunched.
Re:It's Called Greed! (Score:5, Interesting)
I thought it had to do with the very small number of credit-card providing companies operating as a cartel so they can all jointly price-gouge us without competing against each other.
But I don't actually know much about the industry. I just infer that from what I know about human nature. It seems totally plausible that there would be other factors at work as well.
I, for one, just don't pay credit card interest. I pay mine off every month which avoids any interest. Debt is one trap I can easily avoid, so I do.
Re: (Score:2)
But I don't actually know much about the industry. ...
if you care to know a bit, TFA is a tour de force and the upshot is like in the summary. Basically just that they spend a lot of money to make money, like Coca Cola and Nike:
(and this is after the article examines and rejects other hypotheses about default rates, loss ratios etc )
We find that credit card operations have exceptionally high operating expenses—4-5 percent of dollar balances annually. These costs account for about half of default-adjusted APR spreads (interest rate spreads minus net charge-off rates).
Marketing costs are a major component of these expenses. Credit card banks spend an average of 12 percent of assets annually on marketing—10 times the proportion spent by other banks. Consequently, the largest credit card banks rank among the world’s top marketers, with budgets comparable to consumer giants like Nike and Coca-Cola.
Re: (Score:3)
There's a lot of companies issuing custom branded credit cards, but they're just reselling products from one of the major companies, Visa, Mastercard, Discover and Amex. (Yes, there's a few other minor players, but they're not especially relevant. And there's in-house credit accounts a major retailers, but those are also not relevant to this discussion.)
Re: (Score:2)
Re: (Score:3)
With rates so high above prime, why do people carry balances?
Because they're living beyond their means. Sometimes, that's someone being foolish, and sometimes, it's someone in a bad spot through no fault of their own, but they feel the need to spend money they don't have.
If a tough spot where you need to bail yourself out at tremendous expense, even personal loans have better rates.
Historically, credit cards are easier to get than personal loans. At times, a lot easier.
If you need to put a large expense on a credit card, finance it specifically instead.
If you can.
Re: (Score:2)
Well, it appears that the most recent generations don't quite know the definition of of the word "budget"...perhaps not even the concept of it.
I'm not talking about someone that gets hit with an emergency....shit happens, and it's better to charge than live in a box under the underpass.
But for the vast majority of people...not tracking spending, not planning a monthly budget....and impulse buying to have the latest "shiny" that everyone else is buying...seems to be
Re: (Score:3)
Living within your means....and planning, etc...is not rocket surgery....
You don't seem all that savvy yourself. For example:
I pretty much never buy anything on CC that I don't have cash money in the bank for. [...] I do, however, take advantage of 1-2 year interest free "loans". I'll do that, and take the cash I already have for the item and put it at least in savings and earn a bit of interest on it while I set up to auto pay the monthly payments.
In a savings account? Couldn't you find a lower interest rate? You're losing more than you're "earning" to inflation. Speaking of throwing money away, you should be using your CCs for almost everything. Don't underestimate 'rewards'. A traveling friend of mine gets quite a bit of mileage out of miles. I've netted thousands with cash back rewards ranging from 1% to 6%, depending on the card and the purchase. This is money you're spending anyway, so th
Re: (Score:2)
Re: So that's only the card networks (Score:2)
It's a slippery slope; people don't usually plan to start carrying a balance on their credit cards, but when they can't make ends meet that's the easiest way for them to get their bills paid so that's what they do.
By the time they realize they're in trouble, they are carrying enough debt that consolidating it with a personal loan isn't easy, as they aren't considered low-risk anymore.
Re: (Score:2)
Basically more card networks isn't going to solve the problem because the problem is widespread industry collusion.
Re: (Score:2)
There's a lot of companies issuing custom branded credit cards, but they're just reselling products from one of the major companies, Visa, Mastercard, Discover and Amex. ...
Amex and Discover are kind of like that, but Visa and MC are different. There's still reselling, but at a different level: Visa and MC handle the communication between the merchant POS terminal and a bank (and associated fees there). They don't issue credit cards or set interest rates. They also don't handle servicing of accounts or payments by consumers or customer support or anything like that. It's the hundreds of banks and credit unions around the country that open accounts and decision about accou
Social credit score, credit score, same thing (Score:2)
When in Rome, dude. You're only getting screwed on jacked up prices due to merchant fees if you're not paying for everything with a credit card with a good rewards program and paying off the balance every month.
If your argument was supposed to be that we punish people unfairly for not playing the game, well, yeah, we do. Ruin your credit and you pay more for everything, are essentially locked out of home ownership, and forget about shopping for a new (as in actually factory fresh, not new-to-you) car. I
Re: (Score:3)
The ONLY reason why credit card rates aren't even higher is that there are legal limits.
Legal limits to rates however seem to be easily bypassed with "fees". See payday loans and that "buy ow pay later" shit that they've recently relaunched.
There is no federally mandated maximum interest rate for credit cards. For credit cards, the CARD Act offers various protections and provides more transparency regarding rates.
https://www.bankrate.com/credit-cards/zero-interest/does-law-cap-credit-card-interest-rates/ [bankrate.com]
Re: (Score:2)
There is no federally mandated maximum interest rate for credit cards.
I never said that there was. I said that there were legal limits. State law limits, among others.
See the article that you linked to and its references to state usury laws for examples of some such limits.
Re: (Score:3)
There is no federally mandated maximum interest rate for credit cards.
I never said that there was. I said that there were legal limits. State law limits, among others.
See the article that you linked to and its references to state usury laws for examples of some such limits.
Slightly over half of states have usury laws that limit credit card interest rates, BUT federal law [findlaw.com] specifies that the rates a bank can charge are limited by the state where the bank's headquarters is located, not where its customers are. This is why most credit card issuers are incorporated in a small number of states (e.g. Delaware) that don't have any limits. As a result, credit card rates are limited by competitive and similar factors, not regulations.
Re: (Score:2)
There USED to be. But congress decided that would remove that law because we were holding them back from creating great new financial vehicles.
So here we are now..... Set the limit max 7% let them figure it out.
Re: It's Called Greed! (Score:2)
Itâ(TM)s called : youâ(TM)re never supposed to pay interest on a credit card anyway, so the rate is irrelevant. You donâ(TM)t pay interest if you pay your monthly balance at the due date.
Itâ(TM)s not a long term lending facility. If you need to borrow money, get a loan.
60% of accounts carry balances month-to-month! (Score:5, Insightful)
As clear a demonstration of the financial ignorance of the public as one could get. Don't carry a balance forward. Just don't. There are almost always cheaper ways to borrow.
One of the joys of the UK is that my cards are linked to my bank account and automatically pay off the full amount without my having to do anything. I don't know if that facility is the available in the US; I recommend it!
Re: (Score:2)
It is, but if you put $15,000 on your card, for whatever reason, a large number of people can't pay that off in one swoop.
Re:60% of accounts carry balances month-to-month! (Score:5, Insightful)
Re: (Score:3)
Re: 60% of accounts carry balances month-to-month! (Score:4)
Then you have a month to sort out proper lending at a normal interest rate to pay the credit card before youâ(TM)re charged any interest
Re: (Score:2)
Emergencies can happen. Maybe someone had to go to the hospital for something serious. Maybe part of their house flooded.
Things happen beyond our control which might lead to this situation.
Yes, emergencies do happen. And you can't really plan for them. But you CAN budget for them.
I recommend a 1-month emergency fund. This is a savings with enough money to survive and pay all monthly bills for one month if all income stopped. The purpose of this fund is not about losing income. That is just the amount needed. The purpose is to have money for unexpected expenses.
For example, recently I had an appliance break. Rather than put it on a card, I withdrew money from my emergency fund to pay for the
Re: (Score:2)
but I did get things I needed
And many people have to use credit cards to afford the things they need, such as paying medical bills, purchasing food, or paying the gas / electric bill.
And no doubt carrying a credit card balance is a quick route to bankruptcy because, at 27% interest, they are really difficult to pay off. But count yourself lucky that a credit card is not the only choice you have to make it through the month - you are the exception, not the rule in the U.S. today.
Re: (Score:3)
but I did get things I needed
And many people have to use credit cards to afford the things they need, such as paying medical bills, purchasing food, or paying the gas / electric bill.
And no doubt carrying a credit card balance is a quick route to bankruptcy because, at 27% interest, they are really difficult to pay off. But count yourself lucky that a credit card is not the only choice you have to make it through the month - you are the exception, not the rule in the U.S. today.
First, a credit card is a vehicle for purchasing things you don't need at prices you can't afford with money you don't have. I know that some people use cards responsible (there have been several examples in this thread), but most do not. It is too easy to use.
Second, most people confuse needs and wants. They want things and think that they need them. I know from experience. At one time, I was over $40,00 in consumer debt, not including car or housing. It took a long time, and there were many things I did
Re: (Score:2)
You're undoubtedly correct from a mechanical point of view,
and i especially agree that e.g. something like buying groceries to feed yourself / the family on a credit card because you don't have another source of money, is a massive red flag and something to get out from under immediately.
But there's a LOT of psychological stuff that gets in the way (as you prob well know). Some i can think of:
- fear/anxiety of even THINKING about it when you know there's debt there.
- on the "needs vs wants" thing you mentio
Re: (Score:2)
If you have medical bills that are too big to pay right now, hospitals will work out a monthly payment plan with you. And it won't be at 25% interest. If you use your credit card instead, and carry the balance, that is not a smart move.
Flooded house without insurance? Also not smart.
Yes, emergencies do happen. Smart people anticipate that they will happen, and plan for the future. They don't spend every last dime they earn every month. When you do, the first emergency to come along will sink you. Smart peop
Re: (Score:3)
Well, aside from from an actual emergency.....you're supposed to be an adult before you can have a CC...
You show restraint and don't spend beyond your means and don't put $15K on a credit card in a month.
These days I use my Apple Card as my CC for most things, and I can at a glance any time see what my monthly balance is up to....and NOT exceed what I have budgeted.....
Anyone in rece
Re: (Score:2)
I've known several apparently intelligent people who couldn't handle credit cards responsibly. Saying that they *should* handle them responsibly doesn't enable them to do so.
Re: 60% of accounts carry balances month-to-month! (Score:2)
Sounds like they need to work on their impulse control.
Re: (Score:2)
More long prioritizing long term goals over short term goals. And in some cases also on ethics.
Re: (Score:2)
These days I use my Apple Card as my CC for most things, and I can at a glance any time see what my monthly balance is up to....and NOT exceed what I have budgeted.....
The Apple Card is also useful for buying Apple products at 0% financing. Since you're not being penalized at all for buying on credit, might as well (so long as it was something you were going to buy anyway, such as a phone upgrade).
Re: (Score:2)
I posted something like this earlier....but I tend to save my money and 1-2 times a year I drop serious coin on something.
I have cash on hand....BUT, if where I buy it offers interest free 1-2 year financing...I figure why not use free money, and I put the cash I have saved fo
Re: (Score:2)
These days I use my Apple Card as my CC for most things
You should really get a better card. From what I remember, you only earn cash back when you use Apple Pay and even then only at a very limited number of retailers.
So in America they're often aren't (Score:3, Insightful)
Also it's tricky to take a house if there's no lein on it. For the most part if you're borrowing on credit cards it's unsecured debt. Not completely anymore. In some of the southern states judges will throw your ass in jail i
Re: (Score:3)
The key bit of financial ignorance here is not understanding that credit cards are unsecured loans.
Other forms of credit have lower interest rates because the risk of default is mitigated by the ability to seize and sell an asset used to guarantee.
Being unable to pay your bills on time (or at all) increases how much you pay for all forms of credit.
Re: (Score:2)
An unsecured loan under $50k should be, at worst, around 10%. The only reason we put up with that bullshit 23% on CCs is that most people (at least intend to) pay off their cards every month.
Re: (Score:2)
Automatic payments are the way to go, but when the banks mess them up and don't actually debit your account, it's not their fault! You then have no way to fix the problem but to wait on the phone forever for a call center in Bangladesh to answer your call. Credit cards are probably best for travel and to insulate your bank account from fraud. Just keeping up with them by paying before the end of the month is time consuming and people forget, or they just run out of real money for some reason and now they're
Re: (Score:2)
One of the joys of the UK is that my cards are linked to my bank account and automatically pay off the full amount without my having to do anything. I don't know if that facility is the available in the US; I recommend it!
That really just saves you from having to remember to schedule the payment. It does absolutely nothing to resolve the issue of people spending in an irresponsible manner. People who aren't paying off their balance every month are generally living paycheck-to-paycheck and simply don't have the funds available to pay off their credit card balances.
It's an easy trap to fall into, because we all like to imagine a bright future with more income, and hey, a credit card lets you tap into that future right now.
Re: (Score:2)
One of the joys of the UK is that my cards are linked to my bank account and automatically pay off the full amount without my having to do anything.
If people were in a position to use such a service they wouldn't carry balances forward month to month.
I don't use autodraft just in case. (Score:2)
I keep two bank accounts, one in each state where I own land. Each has a credit card (no debit cards, ever) so when one gets locked every few years the other is available.
I also retain paper check books because in event of natural disaster in either state I can still use checks even if the grid takes out credit card processors.
Every CC payoff requires action on my part which is trivial. I also keep a grand or three stashed at home since I buy tools and equipment via local Fecesbook sellers and other cash se
Re: (Score:2)
Those are called "Debit Cards" in the USA. They are linked to your bank account.
Re: (Score:2)
There are debit cards here as well. The difference is they debit immediately and you need balance in your account. Credit cards do the transfer by the end of the month.
Not an issue (Score:2)
The bill arrives over a week before the payment goes out of my account. But thank you for your concern!
So increase risk on card users? (Score:2)
So to counter losses from default rates credit card users are subjected to higher rates for longer which increases their default rate?
...but really what is systemic risk?
Re: (Score:3)
For the banks, that is a win-win.
Most Americans spend more than they can afford to. Most can't figure out what they can actuallly afford. There are so many different kinds of (bad) debt they can establish that even if they know "credit cards evil" they manage to find themselves stuck with another kind of bad loan. Most people cannot establish an annual budget; they are lucky to be able to do so on a monthly basis.
The banks know all this and weaponize it. Before the "financial crisis" the auto companies
Re: (Score:2)
Re: (Score:2)
It seems to take most people several years to figure out that they have to fully default. When they do, the debt is often sold for 50% discount, so the original issuer is likely made whole. There are also a lot of people that eventually pull out of debt, so in the whole the companies come out ahead.
Re: (Score:2)
So to counter losses from default rates credit card users are subjected to higher rates for longer which increases their default rate?
No. The whole point of TFA is that AFTER ACCOUNTING FOR DEFAULT RATES, American CCs STILL have high rates because basically the banks have high marketing spend and because they can.
The only suprise there is (Score:2)
"... 60% of accounts carry balances month-to-month."
Wrong. (Score:5, Insightful)
The answer is "Fuck you, that's why".
Why would they lower it, when they can instead not?
Re: (Score:2)
They can charge whatever they like. You are NEVER forced to get a credit card. You choose to get one. Your choice. You own it. Not societies fault.
High Usage (Score:2)
... the payment method accounting for 70% of retail spending.
Wow. 70% of retail spending is paid with credit cards? I wonder how much of that is online spending.
Re: (Score:2)
Why does that surprise you? I would have thought it was actually higher. At (my) Costco only about 10-20% of transactions appear to be cash, and from a dollar value perspective significantly less than that. I'm actually more surprised that only 75% of American adults have credit cards; doing anything without one seems like a struggle.
Re: (Score:3)
Why does that surprise you? I would have thought it was actually higher. At (my) Costco only about 10-20% of transactions appear to be cash, and from a dollar value perspective significantly less than that. I'm actually more surprised that only 75% of American adults have credit cards; doing anything without one seems like a struggle.
My surprise is that that so many purchasers required "credit" to make purchases. Perhaps in the USA people use credit cards for things that Canadians would use debit cards for.
Re: (Score:2)
Ah, that explains your surprise. At the banks I use the term they use for what you call a debit card is "credit card". (Actually, I suspect that there's no exact translation. It's linked directly to my account, but to prevent withdrawing of more than I have stored in the linked account required explicit request on my part. And that may be the reason that I can't use the card at several small stores, only at large ones.)
Re: (Score:2)
For some reason, we directly use the terms backwards from Europe. In USA, a debit card is tied to your bank/checking account. A credit card is essentially an on-demand, unsecured line of credit that you pay interest on if you don't pay it off by the end of the month.
I could see why someone might think of a "credit" card as a bank card, as in, that's how many credits you have (or something). Where as a "debit" card creates debt that you must payback. Is that the line of thinking in Europe?
Re: (Score:2)
Your mistake here is not differentiating between 'drawing on credit' and 'using a credit card.'
I, also a Canadian, use a credit card for almost everything, because a) rewards, and b) better protections against fraud than a debit card. However, I also spend to my budget and pay the card off in full every month, which means I'm not using 'credit.'
But you're not incorrect that the US banking system uses credit card companies to fulfill the same functions that Interac does up here.
Re: (Score:2)
I never use my bank card anywhere except at the bank to get cash out. I only do that when I need to make a cash purchase (which I do for reduced price on petro) but otherwise don't use cash.
My bank card could get compromised and that's linked to my bank/checking account. Instead, I use a credit card because if that gets compromised, I call my card issuer and immediately have it frozen, a new one issued, etc. Credit card companies also tend to have better fraud protections then banks as well.
And finally, if
Re: (Score:2)
Gotcha. Using my Costco example, I get 5% back in rebates with their credit card. All my cards are paid in full each month, but in the US credit cards have better consumer protection than debit cards. Where merchants pass on the processing fees to the customer I pay cash.
almost no one chooses a credit card for the rate (Score:2)
The reason credit card rates are high is that almost no one chooses a credit card for the rate
so they can basically charge whatever they want.
Most people never intend to carry a balance but then life happens.
Any one who can will quickly pay it off or refinance.
The only ones left are the extremely high risk and/or not very bright people.
It's like the ridiculous high rates on "no interest for a year" furniture purchases.
Everyone intends to pay it off before the year is up but many don't so they end up with a
Re: (Score:2)
It's like the ridiculous high rates on "no interest for a year" furniture purchases.
It's not "no interest for a year"; it's "no interest if you pay off the balance in a year". If you don't pay it off in a year, you get charged the accumulated interest for that first year, retroactively.
No surprise... (Score:5, Interesting)
The only people who carry a credit card balance from month-to-month are people who either 1) have poor credit, or 2) have good credit but have fallen on hard times and/or are not managing their money well for whatever reason. Either way, the chance of default for someone carrying a balance is relatively high compared to car or home loans which are taken out and maintained even by people in very strong financial positions.
Adding to that, people with poor credit are happy to get any line of credit extended to them and have little power to find lower rates. The only competition in the subprime space is payday loans, which typically carry even higher rates. Credit card holders who have good credit don't shop for interest rates because they never expect to pay interest on the card. I suspect many people who don't carry a balance don't know what their credit card interest rate would be (I personally don't know what my credit card interest rate would be other than very high). Either way, there is no downward pricing pressure on rates.
Re: (Score:3)
people who either 1) have poor credit, or 2) have good credit but have fallen on hard times
This is the pull cord that banks use any time there's a call for lowering rates legislatively.
"You'll prevent those in need from getting credit cards."
The rates could be 1/3 of what they currently are and the banks would still make money, not as much as they are now but still be profitable.
Re: (Score:2)
Imagine if this argument was used in drug policy discussions.
"Some people are addicted, they need drugs, it would be cruel to ban drugs"
Yeah, those in "need" of expensive credit are probably those who should not have access to it.
Re: (Score:2)
Re: (Score:2)
Imagine if this argument was used in drug policy discussions.
"Some people are addicted, they need drugs, it would be cruel to ban drugs"
The argument *was* used in drug policy discussion because it actually has some merit and has led to different approaches to drug policies. Repression alone has been proven to fail in many addiction scenarios as some addicts would go to any lengths to keep using, regardless of any ban or punishment.
Many countries moved on from a policy focused merely on repression and instead veered towards a more diversified policy that focuses also on therapy and harm reduction. "Harm reduction" can include opioid maintena
Re: (Score:2)
Any cap in interest is going to reduce the number of people who qualify for cards. Creditworthiness is a spectrum that goes from "this person would only default if the world is ending" to "this person is nearly 100% certain going to default." The latter already can't get credit cards (other than a pre-funded secured card) because no interest rate would compensate the lender if they just max out the credit card and never make a payment.
So the question is where on the spectrum the line should be drawn. At a c
Re: (Score:2)
Re: (Score:2)
You don't need to pay a dime in credit card interest to get an 850 credit score. I've had an 800+ for years now and have hit 850 off and on. I have never paid credit card interest. Latest FICO came in at 850 even though I now have no debts at all other than a credit card I pay in full each month.
Carrying a balance generally doesn't help or hurt you. What matters is your credit utilization. If you have a $1,000 credit limit but regularly have an $800 balance, you are going to end up with poor credit even if
Re: (Score:2)
Re: (Score:2)
Probably would have happened even without the balance then.
Re: (Score:2)
As @nealric is saying, paying interest (or carrying a balance) doesn't improve your FICO score.
Here it is from the horse's mouth (Experian, in this case): https://www.experian.com/blogs... [experian.com]
In the context of this /. thread it's actually kind of funny to read that page since they repeatedly just outright say to pay off credit cards every month, which is kind of a weird thing for Experian to say, imo I would've thought they'd be more in the pocket of CC companies and encourage people to carry a balance.
ok (Score:2, Interesting)
Ok, but why is this on /.?
Re:ok (Score:4, Funny)
Re: (Score:2)
If you don't understand the math behind unsecured debt, you shouldn't call yourself a nerd.
Pay them off! (Score:2)
I have paid off my credit card every month for the last 20+ years. I don't carry a balance for them to make any interest on. And I always pay my statement off 2 days BEFORE the due date just to make sure.
The only ones that have to really worry about high interest rates are the ones who live off their credit card, charge it up to their max and only pay the minimum payment. Those
Re: (Score:2)
This works as long as the card companies continue to give rewards to the "transactors" (i.e. the ones who pay off their balance in full each month.) If they take the rewards away, then there's no point in having a credit card anymore. People would switch to debit cards at that point unless they don't pay off their balance in full.
Re:Pay them off! (Score:5, Informative)
No, credit cards always have the advantage over debit that they're carrying the risk of the transaction.
If you put a payment on a CC and get overcharged, you can issue a chargeback.
If you put a payment on a debit card and get overcharged, wow, that sucks.
Re: (Score:2)
This works as long as the card companies continue to give rewards to the "transactors" (i.e. the ones who pay off their balance in full each month.) If they take the rewards away, then there's no point in having a credit card anymore. People would switch to debit cards at that point unless they don't pay off their balance in full.
Rewards programs are based on transaction volume, your spending, they have nothing to do with your balance or if you pay interest.
Like someone else said, your risk with a debit card is higher, and I think rules for fraud/dispute resolution are different. The easiest way of thinking about it is a debit card is YOUR money, a credit card is the BANK's money. Do you want YOUR money gone for X-Z days while the bank investigates a report of fraud, or the bank's money. It's a no-brainer. Pay your balance every mon
Re: (Score:2)
Re: Pay them off! (Score:2)
Re: (Score:2)
Re: (Score:2)
Credit card companies do actually make money on people who pay their balance in full every month. Every time you swipe your card, merchants pay a fee of 2-3% of the purchase price. Some of that may come back to you in rewards, but not all.
You can check out any time you like, (Score:3)
but you can never leave. (Except by bankruptcy, or paying off the balance in full)
One you get into debt with these parasites, you're their host until you pay off the balance in full. If you don't have the means to pay off the balance, they'll continue to sap you. Most (I think it's 70%) don't pay of their credit card balance in full each month.
Wrong reason... (Score:3)
The reason credit card interest rates are high *is because for most credit card customers, they are not a purchasing factor*.
When I am choosing a credit card, I care about things like
- What perks it comes with
- What miles or rewards does it offer
- Is it easy or hard to manage and pay the bill (is it integrated with my bank or not)
If one cares about interest rate on a credit card, then they would be shopping for one of the MANY low-rate cards available. But the vast majority of CC users don't care about that.
No, this is wrong (Score:2)
The reason credit card rates are high is the same as why payday rates are high and why medical care prices are high. There is no working supply-demand mechanism in those markets. The people who don't pay off their balances each month are generally the same people who don't know how to or don't bother to shop around for better rates. That coupled with the credit card company strategy of denying the good rates to people who need the good rates. It's not an accident that the best rates are reserved for tho
Cultural problem (Score:2)
I sure wish they'd fuck off with their ads (Score:2)
Spending all that money on advertising surely does something, and they track where the applications come from pretty closely so they do know when and where it's working, but they also send just a total shitstorm of ads to the same people which is surely unnnecessary. I applied for a Capital One Visa because there was a referral deal, but I didn't qualify and didn't want their consolation deal. They then sent me an expensive glossy ad packet about every week for two months, and followed that up with another
Not to mention (Score:2)
That theft also is a lot of loss that the credit companies have to eat, someone steals your number and they pay for it and figure out who stole your number. That has costs. And people that pay the debt are charged for it, which is unfair but you don't have to go into debt if you have a credit card either.
What the market will bear (Score:2)
Why are credit card interest rates so high? Because customers agree to pay it.
It is what the market will bear.
It has nothing to do with cost of doing business.
couldnt be anything to do with (Score:2)
Chris Kohler nailed it in this short (Score:2)
Banks Living the Dream
https://youtu.be/__Ck7mG18GY [youtu.be]
So glad ... (Score:2)
... that I have not had one in many years.
Whatever the question, credit cards are note the answer.
Not tech so why is this news? (Score:2)
SSL
Credit card interest rates should not matter to adults who pay them off before they're due, and anyone stupid enough to rack up credit card debt is not worth addressing.
Not to sound like a liberal snob (Score:2)
Most people are dumb, and their stupidity affects us all. The government regulation of allowable business practices is one way we can steer society down a better path.
People need (at least) Two credit cards (Score:2)
Credit card one should be used for everyday purchases and provide you with useful rewards. This credit card balance gets paid off every month and its limit, whether self imposed or by the card company, should be the amount you know you will be able to pay off. If you have two paychecks each month, limit the balance to the amount of one check. That guarantees you will have the money available to pay the balance when it comes due.
Credit card two should have the lowest interest rate you can find and the larges
Re: (Score:2)
I can count on one finger the number of times I've desperately used a credit card as an emergency loan.
I had a 0% credit card introductory offer, I was buying a house, you're not allowed to use credit to make a deposit on a house (they literally check your account to discover the origin of the money) in my country, so instead I used it to pay the legal fees etc. to reduce my first-month costs of buying a house. I have still paid 0% interest on that.
However, would I use it because "it's the only form of per
Re: (Score:2)
I use my credit card for nearly every transaction, and I pay it off at the end of the month. It's a convenient way to manage my budget. And avoid getting stung with ATM fees or go to one of the locations for my rather stupid bank to get cash.
Most people don't use credit cards like you or I. If they did, I don't think credit card companies would be so profitable, and they probably would be charging us a monthly fee on top of what they charge merchants.