# Are increasing Credit card interest rates good or bad for society?



## burmo (20 Dec 2012)

Hi,

I was reading and hearing about people complaining about the interest rate hikes on various credit cards over the past couple of months... Personally if I could make one policy change in government it would be to [FONT=&quot]severely [/FONT]restrict the amount of personal credit (mortgages are a separate discussion). I firmly believe that if you don't have the money you should save until you have and should have the philosophy of having a savings buffer for lifes eventualities.

My perspective, and it's the way I was raised, is to cut your coat to  suit to your cloth. I think it is broadly agreed that things are going  to remain very tough for the next several years. And that people are  going to be continued to be squeezed more and more due to a static (at  best!) wage with increasing taxes and increasing mandatory expenditure  such as energy costs, car tax, etc. With that in mind I think more people need to adjust their lifestyle to suit their new financial outlook. I also think, like unsustainable mortgages, people should be limited from getting into a debt spiral by limiting access to it.

An alternative way to look at it is to imagine someone has a credit card limit of 5k. I know of people who treat this as the hard limit and continually have their balance at e.g. 4.5k but when approaching their limit they rein in further expenditure. So there is a floor... if they do not have a credit facility then this floor shifts to 0 but everything else remains the same.

Therefore raising interest rates is certainly one way to make credit cards less attractive. Thoughts?


----------



## Bronte (21 Dec 2012)

burmo said:


> An alternative way to look at it is to imagine someone has a credit card limit of 5k. I know of people who treat this as the hard limit


 
The new culture I've noticed of credit cards is to see the limit as a target.  I personally don't understand this way of thinking.  But I think the credit card companies by their practices have encouraged this thinking and it should be up to government to row back the tide on this.  

One way they could help is that apart from not allowing credit card limits to be automatically increased.  Another thing they could do is disallow minimum payments that do not decrease the debt.


----------



## vandriver (21 Dec 2012)

When I got my first credit card,the minimum payment was 5%.Its now down to around 2%,so effectively making credit cards interest only.


----------



## wbbs (21 Dec 2012)

There is a question of education there too, credit cards are very convenient but the aim should be never to pay interest, if you don't have the money to pay it off don't spend it.

I have a 28 yr old who has a cc and can't figure out why there is a credit of couple of hundred on it, card is used pretty much only for online purchases of which there are many, but every week when paid she goes to the post office and lodges an amount to cover any purchases that week.  As she has been rounding up the amounts for convenience there is now a credit accumulated, asked me to double check the statements before she went and spent the credit in case it wasn't really a credit but it is.   She does have online banking and could pay it that way but prefers the discipline of paying it weekly with cash after withdrawing her weekly budget from ATM.

Don't know who is going to provide the education though, doubt if there any great amount of personal finance education at school and we have a generation now up to their necks in debt, mind you their children will probably be better with money from the lessons their parents have learned.


----------



## Brendan Burgess (21 Dec 2012)

vandriver said:


> When I got my first credit card,the minimum payment was 5%.Its now down to around 2%,so effectively making credit cards interest only.



I think that the UK forced the bank to raise the minimum payment.

Research has shown that a lot of people pay whatever the minimum payment is.  So if it's 2%, they will pay 2%. If it's 10%, they will pay 10%. 

I think that raising the minimum payment would be far better than putting up interest rates.


----------



## vandriver (21 Dec 2012)

Brendan Burgess said:


> I think that the UK forced the bank to raise the minimum payment.
> 
> Research has shown that a lot of people pay whatever the minimum payment is.  So if it's 2%, they will pay 2%. If it's 10%, they will pay 10%.
> 
> I think that raising the minimum payment would be far better than putting up interest rates.


Unfortunately,
only better for the consumer,not the bank.


----------



## losttheplot (21 Dec 2012)

Some people fall for the "convenient" automatic minimum payment. Years ago I switched cards and there was an option to set up a direct debit to automatically pay the minimum amount - so you'd never miss the payment. Seemed like a good idea until I realised I was forgetting about it as there was the safety net of the automatic payment, even when I had the money to clear the balance I was getting hit with interest. I have a feeling the banks know this too. I soon learned. Now I use a credit card when I can as there are no charges (unlike debit cards), but I always pay the amount due, so haven't paid interest for at least 6 years.

I have to thank Eddie Hobbs and his "Show me the Money" programme and AAM for teaching me to use a credit card effectively. Personal finance and consumer awareness should be part of the school curriculum.


----------



## becky (21 Dec 2012)

Bronte said:


> The new culture I've noticed of credit cards is to see the limit as a target.  I personally don't understand this way of thinking.  But I think the credit card companies by their practices have encouraged this thinking and it should be up to government to row back the tide on this.
> 
> One way they could help is that apart from not allowing credit card limits to be automatically increased.  Another thing they could do is disallow minimum payments that do not decrease the debt.



Did the practice of automatically increasing not stop a few years back?

I have a cc for years and have a limit of €1500.  I have never been offered an increased limit (I had to request this limit) but my friend had a limit of €15,000 at one stage. Crazy stuff imo.


----------



## losttheplot (21 Dec 2012)

My limit was automatically pushed up to 15k while at college. I purchased stuff on line for family members who didn't have internet access (the dark ages of the internet) and they paid me cash. I had no official income and a credit limit of 15k and constant offers of a gold card. Felt a bit like CJH.


----------



## mark71 (21 Dec 2012)

I got my first card in 2001 with a 1000 limit. 6 months later they bumped it up to 11k. It's as if they wanted people to fall into the minimum ,endless, payment trap.
 I've always cleared the card every month thank god.


----------



## losttheplot (21 Dec 2012)

I'd known some who could max out three cards. When I got my card in the late 90's they were fussy who they gave them too. Then in 00's they were marketing them to students. I was tempted to go on a spending spree this month, just incase the world ended, wouldn't have liked to miss out on the debt forgivness that would have came with the end of the world. Glad I didn't now.


----------



## ANORAKPHOBIA (22 Dec 2012)

"I have a 28 yr old who has a cc and can't figure out why there is a credit of couple of hundred on it,"

I would be worried if I had a 28year old who could not figure this out without asking parents.


----------



## wbbs (22 Dec 2012)

Not everyone is good at maths which is why I was asked to double check it, I am perfectly happy to be asked to check something like this as my background is finance, and even happier that she has incurred no debt of any sort at this stage.   I have come across many people over the years in my job who cannot figure out their bank statements etc, it is not uncommon, unfortunately for lots it means bad financial management.


----------



## Brendan Burgess (23 Dec 2012)

ANORAKPHOBIA said:


> I would be worried if I had a 28year old who could not figure this out without asking parents.



It's not just maths.  bank statements are often very difficult to  understand and to reconcile. 

Brendan


----------



## seantheman (24 Dec 2012)

ANORAKPHOBIA said:


> "I have a 28 yr old who has a cc and can't figure out why there is a credit of couple of hundred on it,"
> 
> I would be worried if I had a 28year old who could not figure this out without asking parents.


 

I'd be worried if i was a 28yr old and had a parent called ANORAKPHOBIA


----------



## losttheplot (24 Dec 2012)

I have found that even some people who are good at maths can be financially illiterate.


----------



## DMcL1971 (25 Dec 2012)

ANORAKPHOBIA said:


> "I have a 28 yr old who has a cc and can't figure out why there is a credit of couple of hundred on it,"
> 
> I would be worried if I had a 28year old who could not figure this out without asking parents.


 

I wouldn't care about her asking to have her maths double chcked. I am impressed that she has the good sense to always pay off her credit card, thereby not incurring any interest. She also lives on a budget. I wish every 28 year old was like her. Well done wbbs, excellent parenting.


----------

