Credit Cards – Good News, Bad News

Part of the solution to the recovery from the recession will be to restore confidence in US financial markets.  President Obama realizes that is a key task for him and is currently pulling out all the stops in the Confidence Game

The banking system and its willingness to provide necessary credit is critical here.  It is unfortunate that the system has been severely stressed over the past months so a variety of initiatives are being pursued.  Credit cards, which have exceptional consumer acceptance, are the subject of some good news items and some less good news items.  It all depends which side of the bank counter you are on.

Bill Tightening Credit-Card Rules Advances in House is good news for consumers.

The House measure, yet to be approved by the full Financial Services Committee would restrict card companies’ ability to raise rates on existing customers and ban certain controversial practices, such as applying payments to the portion of a borrower’s balance with the lowest interest rate. It would also prohibit issuers from charging interest on parts of the balance that were already paid on time, a practice known as double-cycle billing.

Although central bank interest rates may have gone down, Credit card interest rates are rising marginally.  The average annual interest rates charged on three popular types of credit cards inched up.

• low-interest credit cards, offered only to customers with strong credit histories, 
• balance transfer cards, which allow consumers to consolidate outstanding debt from one or more cards, and
• cash back cards, which feature cash or other reward incentives and generally require a good-to-excellent credit rating for approval.

With such a variety of credit card arrangements, it is not surprising that they are widely accepted and can even lead to a troubling debt conundrum, where debt-to-disposable-income ratio in Canada is now close to 140% when it was about 86% in 1980 according to the Vanier Institute of the Family.   The US figures on debt and income are probably comparable.

Credit cards can be a great convenience if used wisely.  That can be true even when it may concern credit cards for bad credit applicants.  Some of those seeking bad credit credit cards may well have had an unfortunate series of mishaps that forced them to pay out perhaps unexpected medical bills.  Or perhaps they wish to consolidate a series of loans that may be at very high interest rates.  Finding a source of  bad credit loans can be the opportunity to get back on a sound financial footing.  The important discipline required as with all credit cards is to ensure the repayment plan is practical and livable within the overall family budget.