Credit card offers are everywhere. They are inside the buildings at Portland State University, they are outside the buildings waiting for you and they are even in your bag of new schoolbooks you just bought. They are even in your mail.
Credit cards can seem like free money, but they have a price and a high one at that. Credit card companies try to entice unsuspecting consumers by offering “free” merchandise as a sign up bonus. That free candy bar or book bag is not worth ruining your credit.
However, having a credit card does not automatically equate financial disaster, in fact they can be beneficial in establishing your credit. But you should read the fine print before you sign the dotted line.
A Portland State University summer capstone included a project called Plastic Power that was designed to educate students about the dangers of credit cards. Plastic Power is a project for the Public Relations Student Society of America, which has produced a pamphlet titled “PlasticPower: Credit Card Secrets and Solutions.”
There are many things you, as a consumer, should know about credit cards.
The average household’s credit card debt carries a balance of $4,000 on several cards from month to month. The average balance on a credit card is $7,000 and the average household has 10 credit cards.
In 1999 there were more than 1.354 million bankruptcies declared. With that many bankruptcies occurring, you may wonder how credit card companies make their money.
Credit card issuing is a big money business and the credit card companies make their money in several ways.
One way the credit card companies make their money is by the interest left on unpaid balances. The high interest rates are what help keep you in debt if you do not pay off your balance in full every month. The average interest rate on credit cards is 18.9 percent.
In addition, the card issuer can make money on annual fees paid by you, but those fees are usually used to pay certain expenses.
Lastly, the cardholder can make additional money off of you through other means, such as selling your name to a mailing list or sending advertisements in your monthly bill.
The biggest expense or risk credit card issuers face is the loss of money lent to other cardholders that default on their debt. The credit card companies pass those expenses occurred from others along to all cardholders through interest rates, annual fees and late charges.
Almost half of the households with credit card debt report having difficulty paying their minimum monthly payments, thus making bankruptcy seem like a viable option.
Credit card companies make more money if you only pay your minimum balance.
The typical “Minimum Monthly Payment is 90 percent interest and 10 percent principal. Americans paid out approximately $65 billion in interest last year alone.
It is best to pay off the balance at the end of each month, or within three months in case of an emergency, such as a broken car. Do not go beyond those three months.