Credit Card Debt: Who benefits from the government's new credit card regulations?
If you have excessive credit card debt, the government's new rules will help you "manage" that debt. If you don't have excessive credit card debt, you may be in for a big surprise.
The rules help those who carry balances on their credit cards, But while it's not clear what the card companies will do in response to the new rules, it's possible the folks who pay off their balances each month may now suffer. Let's see why.
Most of us believe credit card companies must make fortunes, given the high rates of interest many charge. But remember that, for many years now, credit cards have been issued to people with little regard for their credit-worthiness. And many people who ran up huge balances simply can't pay those balances.
Raising rates is one way companies deal with the folks who default. They can't collect what's owed them, so they charge more interest to those who have excessive credit card debt.
It's a bit more complicated than that, but you get the point. Now here's the rub.
If you're one of those who pays off your balance every month, you may be a problem for the credit card company under the new regulations. After all, if the card company can't raise rates on those who owe, their profits will be squeezed. So where will the companies make up for those lost profits?
Will they start charging big or bigger annual fees on cards? Will they cut your credit limit, or even close your account? The point here is why would they want you as a customer if you're not "profitable" to them? After all, if you pay off your balances, you're not paying them interest.
Doesn't this seem unfair? It seems similar to the efforts to bail out those who took on a mortgage and now can't pay.
It's not exactly the same, in that tax payer dollars aren't being used to subsidize people who carry excessive credit card debt. But in the end, the prudent may be the ones with a problem. Question: why do the responsible, prudent folks seem to be getting the short end of the stick in this crisis? Doesn't it feel like that?
Credit card debt may not be a problem for you. But the fact is, even if you prefer paying cash, it's hard to function without a credit card for certain transactions.
Well, so far the credit card companies don't seem to have changed things much. I just got a better credit card for my business, with no fee and a reasonable credit limit. So maybe it won't be a problem. But the possiblity is something to be aware of.
The rules help those who carry balances on their credit cards, But while it's not clear what the card companies will do in response to the new rules, it's possible the folks who pay off their balances each month may now suffer. Let's see why.
Most of us believe credit card companies must make fortunes, given the high rates of interest many charge. But remember that, for many years now, credit cards have been issued to people with little regard for their credit-worthiness. And many people who ran up huge balances simply can't pay those balances.
Raising rates is one way companies deal with the folks who default. They can't collect what's owed them, so they charge more interest to those who have excessive credit card debt.
It's a bit more complicated than that, but you get the point. Now here's the rub.
If you're one of those who pays off your balance every month, you may be a problem for the credit card company under the new regulations. After all, if the card company can't raise rates on those who owe, their profits will be squeezed. So where will the companies make up for those lost profits?
Will they start charging big or bigger annual fees on cards? Will they cut your credit limit, or even close your account? The point here is why would they want you as a customer if you're not "profitable" to them? After all, if you pay off your balances, you're not paying them interest.
Doesn't this seem unfair? It seems similar to the efforts to bail out those who took on a mortgage and now can't pay.
It's not exactly the same, in that tax payer dollars aren't being used to subsidize people who carry excessive credit card debt. But in the end, the prudent may be the ones with a problem. Question: why do the responsible, prudent folks seem to be getting the short end of the stick in this crisis? Doesn't it feel like that?
Credit card debt may not be a problem for you. But the fact is, even if you prefer paying cash, it's hard to function without a credit card for certain transactions.
Well, so far the credit card companies don't seem to have changed things much. I just got a better credit card for my business, with no fee and a reasonable credit limit. So maybe it won't be a problem. But the possiblity is something to be aware of.
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