Destructive Effects That Credit Cards Have On Americans
Com/156 University Composition and Communication 2
November-27, 2011
Catherine Wadbrook, MA, MEd.
Destructive Effects That Credit Cards Have On Americans
Most Americans should not use credit cards because of the destructive effects that interest rates place on personal and family finances. In the current economic environment, banks receive capital from the Federal Reserve at interest rates near 0%, and relend this capital to consumers through credit cards at interest rates varying from around 8.5% to 25%. Banks charge higher rates of interest on consumer debt through credit cards primarily because of the increased risk exposure on the loans. This risk to banks from credit cards can come in the form of charge-offs, late or unpaid accounts, or uncollectable debts. Yet, while banks use this threat of increased risk to justify the higher interest rates, the same institutions also charge significant late fees, overdraft penalties, and debt-collection surcharges on consumers when they miss payments or go into default. These additional fees are included in the fine print of credit card agreement statements that few people bother to read or study before signing up with a bank. Consequently, credit cards can lead to significantly higher charges over time for the same retail items than if the identical goods were purchased with cash or second-hand at a discount. Because many retail purchases such as electronics, automobiles, or other appliances can lose as much as 50% of their value against new item prices when they are used, there often is no opportunity for consumers to resell goods purchased with credit for the same price as the original item. These factors combine to make credit card use personally inadvisable for most consumers, though society presents few options in alternative to this form of lending.
Economists, financial advisors, and analysts have been warning consumers for decades about... [continues]
Com/156 University Composition and Communication 2
November-27, 2011
Catherine Wadbrook, MA, MEd.
Destructive Effects That Credit Cards Have On Americans
Most Americans should not use credit cards because of the destructive effects that interest rates place on personal and family finances. In the current economic environment, banks receive capital from the Federal Reserve at interest rates near 0%, and relend this capital to consumers through credit cards at interest rates varying from around 8.5% to 25%. Banks charge higher rates of interest on consumer debt through credit cards primarily because of the increased risk exposure on the loans. This risk to banks from credit cards can come in the form of charge-offs, late or unpaid accounts, or uncollectable debts. Yet, while banks use this threat of increased risk to justify the higher interest rates, the same institutions also charge significant late fees, overdraft penalties, and debt-collection surcharges on consumers when they miss payments or go into default. These additional fees are included in the fine print of credit card agreement statements that few people bother to read or study before signing up with a bank. Consequently, credit cards can lead to significantly higher charges over time for the same retail items than if the identical goods were purchased with cash or second-hand at a discount. Because many retail purchases such as electronics, automobiles, or other appliances can lose as much as 50% of their value against new item prices when they are used, there often is no opportunity for consumers to resell goods purchased with credit for the same price as the original item. These factors combine to make credit card use personally inadvisable for most consumers, though society presents few options in alternative to this form of lending.
Economists, financial advisors, and analysts have been warning consumers for decades about... [continues]
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