Now is the time to cut up those credit cards. Faced with difficult times and more people defaulting on their credit, the banks and credit card companies seek out other means to maintain profits. Their solution is to make existing customers pay more. This from MSN Money:
The Federal Reserve has slashed its benchmark rate to 1%, yet many people are getting hit with higher rates and fees on their credit cards.
Normally, when the Fed cuts rates, credit card issuers follow suit, resulting in lower monthly payments for cardholders. Though average credit card rates have fallen slightly as the Fed has cut interest rates, banks and retailers are trying to offset rising losses in their credit card operations by raising rates and fees across a broader swath of their existing customers.
Banks had already been tightening the screws on people with less-than-perfect credit in recent months. Now, even customers who pay their bills on time will find it more expensive to carry a balance.
The way they will keep profit is by charging clients more fees and more interest. This is what some banks in the United States will do:
The Chase unit of JPMorgan Chase is raising its rates on credit card cash advances and overdraft protection, as well as its default rate, which is triggered when cardholders exceed their credit limits or are late on their payments. The bank will also start charging a new $10 monthly service fee to some cardholders who have been carrying large balances for at least two years, while raising their monthly minimum payments to 5% of their outstanding balance, from 2%.
The Citibank unit of Citigroup and American Express have been notifying groups of cardholders that they will raise their regular interest rates by 2 to 3 percentage points. In addition, AmEx is raising its rates on cash advances, late payments and defaults, increasing its foreign-exchange fees to 2.7% from 2% on its consumer and small-business cards, and eliminating ways to earn rewards on one of its popular cards.
In other words, now is a good time to eliminate your credit card debt. If you have large balances on your credit cards, now is the time to cut them up and stop using them. Pay off those cards and pay them off first before using credit. Otherwise, the new fees and the new interest rates risk pushing you off that credit cliff.