Hidden Costs

Banks are “putting plastic credit cards into the hands of people who really can’t afford them and who don’t understand the intricacies of debt,” noted a recent newspaper article. Using credit cards, without understanding how credit works, has resulted in financial disaster for many.

For example, one newspaper reported that a woman obtained a loan of $3,000 with her credit card. After her first three payments totaling $220, she still owed $2,956. Over a period of seven months, she had paid $584, which reduced her debt by only $157.19. Where did the rest of the money go? To pay interest! Until recently, some banks charged up to nearly 22-percent interest. As a result, cardholders’ indebtedness has reached a historic high.

In the final analysis, who pays the price? While it would appear that banks do, Parents magazine supplies a more realistic answer. It observes that banks “keep the interest rates charged on . . . cards artificially high to cover losses incurred through their misuse.” Additionally, when banks “are paying 7 or 8 percent to borrow money and charge the credit-card holder 16, 18, or even 20 percent, the huge difference allows them to absorb the cost of a great deal of credit-card fraud.” Yes, in the final analysis, every cardholder is paying the price.