Credit Card Companies: Their Power, Your Debt

Beware of Promotions
A promotional credit card mailing from US Airways caught my attention: apply and get 15,000 frequent flyer miles and transfer a balance and get no interest for 6 months.

My wife and I both had Citibank cards and mine had a balance after using some of the credit to pay costs for fixing an investment property in Pennsylvania. So we decided to transfer the cards. However, we didn't know the 8^th of the month was the cut-off for US Airways. They took away the promotion because we didn't make our first payment until the 16^th of the month which was when we normally paid our other card.

The transfer fees hit along with an 18% interest rate even though we have very good credit. I wrote about the little fiasco on Cash Flow Tips Today.

Wow. Credit card interest rates. While the focus today is on the sub-prime lending that is part of the current financial crisis in the United States, nevertheless, charging exorbitant interest rates is a practice that has hurt the economy over the long run.

History and Controlling Money
There is a quote from James Madison on the home page of Federal Debt Relief System (FDRS), a company which helps families get out from under credit card debt.

"History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and its issuance."

Strong words. And, yet, they seem unfortunately true among banks who issue credit cards with high interest.

Earl Belt, a manager with FDRS, told me that the perfect customer for credit card companies is "the person who makes payments each month but continues to carry a balance." He calculated that the average American can bring over $ 100,000 in profits to a credit card company. That's based on a card carrying a $ 9,000 balance with an interest rate of 16% and a person having up to 5 cards.

He believes not only should there be a limit on the amount of interest a credit card company should be allowed to charge, he also believes it would be better if cards would be tied to assets.