An average American receives 8 credit card offers every month. Credit card companies are marketing their products more aggressively now. This is because they make huge profits and want to continue to do so. Between 1995 and 1999, their profits rose from $7.3 billion to $20 billion.
Means of Generating Profits
25% of creditors’ income comes from late fees. The average late fee is $35 for a balance above $1,000. The average credit card debt of American families is $10,000; therefore, the scope of generating profit from late fees is quite large.
Promotional offers are another deceptive means of generating profits. If you have a closer look at the fine print, you see the catch. The promotional offer will state that if you are late in paying up even once during the promotional period, the interest rate goes up drastically. Then you will also pay a late fee. On your second late payment, the interest rate goes up as high as 29%. Again, you pay a late fee.
Credit card companies penalize you heavily for exceeding your credit limits too. About 1/3 of creditors’ income is generated through late fees and penalties on spending over and above the card limit.
Secret behind Small Monthly Payments
Another dubious method of generating income is by allowing customers to make small payments. If one follows this method, it some times takes years to pay off just a few thousand dollars. If you look at the interest rate, which is as high as 20%, you will understand why the creditors allow you to make minimum payments.
The intensity of creditors’ marketing campaigns can be gauged from the fact, that in the second quarter of 2000, 992 million solicitations were sent out. The credit card companies burden the consumers with late fee, over limit fees, high interest rates, and encourage them to pay smallest amount so that they can earn on the interest. This was proven by a survey conducted by the state PIRGs. It looked at 100 credit card offers and concluded that (a) credit card terms and conditions are becoming less favorable, and (b) marketing practices are deceptive and misleading. To make matters worse, these companies are trying to make it hard for customers to announce insolvency and to augment the amount of arrears for which the customers will be responsible after announcing liquidation his was proven by a survey conducted by the state PIRGs. It looked at 100 credit card offers and concluded that (a) credit card terms and conditions are becoming less favorable, and (b) marketing practices are deceptive and misleading.
To make matters worse, these companies are trying to make it difficult for consumers to declare bankruptcy and to increase the amount of debt for which the consumers will be liable after declaring bankruptcy.
Therefore, have fewer credit cards and always pay on time.