Credit Card Interest Rates Hit Record Highs As Companies Market Themselves More Aggressively

If one of your New Year's resolutions is to pay off your credit card debt, be advised that it's getting harder all the time. That's because credit card interest rates climbed to record highs last month, reaching an average of 15.22 percent, according to the consumer information site CreditCards.com.

The rising rates reflect an ongoing push-and-pull between the people who use credit cards and the companies that distribute and collect on them. With the economy stuck in low gear, and with an increasing number of Americans working low-paying jobs that keep them living paycheck to paycheck, customers appear to be leaning on credit cards more and more.

In 2011, credit card users built up a collective $64 billion in debt -- a sum much greater than in either of the two previous years, according to The Christian Science Monitor.

Yet even as Americans continue to swipe more plastic, credit card companies are still trying to attract greater numbers of users, reportedly hoping to make up for revenue lost in the aftermath of the financial crisis, when millions of people lost their jobs and were forced to cut back on spending.

In a bid to encourage further activity, credit card companies are increasingly relaxing their standards and targeting people with spotty credit records. Card companies sent 418 million mail offers to subprime borrowers in the first three quarters of 2011, according to The Wall Street Journal -- more than twice as many solicitations in 2010.

Subprime borrowers are some of the people most vulnerable to higher interest rates, as they face more challenges digging their way out of debt. All Americans are vulnerable to some extent, however, especially if -- as is the case for many people -- they tend to underestimate how much debt they're actually carrying at any given time.

Late payments were trending upward this past fall, according to reports from various credit card companies. They remain below the levels seen before the Great Recession, according to the Associated Press, though that may be because overall credit-card use is also down.

After peaking in mid-December, interest rates have since declined slightly, though they remain at historic highs. The most recent CreditCards.com report shows that average interest rates have come down to 15.14 percent as of December 27 -- which is still markedly higher than six months ago, when average interest rates were at 14.84 percent.

Comments

[ehjay]

05:10 PM on 01/06/2012

credit card interest rates climbed to record highs last month

So the Banks (credit card issuers) are now repeating a process that caused the housing collapse. 5 years ago. All this while Congress sits and watches. Higher interest rates in such a large sector of the economy slows growth, something even a main-street economist understands.

[Jay Gould]

04:46 PM on 01/06/2012

I've already commented on this one, but here is a more detailed analysis of the increase in credit card APRs, which confirms that in the past six months to a year it is largely due to the rise in newly issued sub-prime credit cards: http://blog.unibulmerchantservices.com/why-are-credit-card-interest-rates-at-record-highs.

[djcrwdplza]

04:36 AM on 01/06/2012

Basically, we are being screwed in the most obnoxious way possible. You can't renegotiate your payments or interest rates, and being in good standing makes no difference to them.

[djcrwdplza]

04:36 AM on 01/06/2012

NO - the credit card companies don't want to float any risk AT ALL. They'd rather you start using them all like an AmEx card: with such high interest rates that you are persuaded (hopefully, in their opinion) to reduce your debt if you can and pay off the card month after month.

This seems strange to me, as those who are having trouble would do better with smaller monthly payments and lower interest rates, the "lent money" is all on paper - these companies are not sticking their necks out initially - and those who carry balances end up paying more to them over time.

However, I'm sure many will soon begin to default not only out of inability to pay off the loan in the short term or even make minimum payments, but also out of sheer frustration and anger at the terrible way we are being treated.

Do you realize how many people who PAY ON TIME have had their rates increased to ridiculous percentages???

The credit card companies have decided on arbitrary due dates, a host or reasons to consider you "late" (even though technically you are NOT late unless you have not paid for a month), and even changing terms on you due to any random activity they have access to on your credit report that they deem "risky".

Even if the information is INCORRECT.

[LUHG]

03:46 AM on 01/06/2012

"straight cash homey"

Randy Moss is a better financial planner than Suze Orman.

[pinetrale]

10:51 PM on 01/05/2012

Banks should lower rates again for good users like they use to. The taxpayers bailed them out of the financial crises and now they should return the favor and stop being so greedy.

[MayorsRevenge]

11:03 PM on 01/05/2012

No - people should just stop spending money they literally do not have.

[goodwillsf]

01:50 AM on 01/06/2012

this country would come to an immediate and permanent halt if credit was abolished, our nation was built by debt, sustained by debt, and addicted to debt, from the individual to the biggest corporation and the government itself, unfortunately poor debt terms and servicing the debt may ruin many, but likely enforced by selective punishment, who is the collection agency chasing after our massively indebted governments?

[mxfw9999]

10:40 PM on 01/05/2012

use it pay it off each month. But better yet use cash only for everything and ask for a discount not to use the card the company or store will give it to you they have to pay to process the bill . Cash only

[MayorsRevenge]

11:05 PM on 01/05/2012

Still bad - you have to add up EVERY CREDIT CARD balance together and ALL THAT demand in our economy is false. Think about it. If you make $50K and spend $5K in credit in the economy then TEN PERCENT of the entire US economy is FALSE and temporary.

[Josh Frank at CRL]

07:10 PM on 01/05/2012

Credit card interest rates are NOT at “record highs.” Rates people pay are both lower and more transparent since the CARD Act was passed, Center for Responsible Lending’s research shows, http://bit.ly/ijhRRK. Initial rates may seem higher because issuers can’t lowball rates on ads and solicitations and then jack up actual rates. The average price consumers actually pay is the lowest it has been in about eight years, Federal Reserve data shows. In addition, claims of “record highs” mislead because the information comes from online, credit card marketing websites that only have a few years of data. The new law makes prices more transparent, which breeds competition, which further cuts prices long run. Even the American Bankers Association agrees the law benefits consumers in this way.

Josh Frank, Center for Responsible Lending

[goodwillsf]

01:52 AM on 01/06/2012

then why have my interest rates gone up and stayed high with credit accounts I've had for years, I've good credit and my finances have improved, I don't believe my experience is an anecdotal anomaly

[OhManOhMan]

11:46 AM on 01/05/2012

Congress???? Election is here and what are you going to do about it ?

[CDRUSNret]

06:17 PM on 01/05/2012

Thank Chris Dodd and Barney Frank. The law of unintended consequenses.

[wepopew]

10:11 AM on 01/05/2012

Interest rates this high used to be called "loan sharking" and was considered illegal, of the "criminal element in society." They can borrow money at 1 to 3 percent and loan it to you at 15 to 29 percent.
Check your credit cards for actual rates. Get cards with low rates if you must use a credit card, or go to your local bank and borrow at a reasonable rate.... 3 to 7 percent. WATCH THE SMALL PRINT!!

[Kazzim Zongo]

08:30 AM on 01/05/2012

Thank you, fed.

[CDRUSNret]

06:16 PM on 01/05/2012

Thank you Dodd-Frank.

[Carl Crooks]

05:01 AM on 01/05/2012

Where's the interest rate cap from dodd-frank huh?

[General Washington]

04:20 AM on 01/05/2012

Thank goodness one of the Great Accomplishments was to reign in credit card companies...

[Nibras Chowdhury]

03:59 AM on 01/05/2012

Credit card is just a policy to make you fall into a dark pit of debt. It makes you pay the Wall Street people unlimited interest. Save the nation. Stop using Credit Cards to save the economy. You don't need Occupy Wall Street. Just stop providing the 1% money :)

[David LS]

02:09 AM on 01/05/2012

The banks and the mortgage companies are well aware of the over indulgence of the American people.
The retailers make so much profit from imported products that they can suck you in to buying something that you might never look at, no less use for 30% off.
Over indulgence is not a sickness, it our way of life.
Knock! knock! this is the sheriff we have come to repossess your life.