Com156

Even though credit cards can be helpful to use in case of an emergency, most Americans should not use them because credit cards make it easy to overspend and get into debt. Some of the major reasons that cause people to fall victim to credit card debt are the misuse of credit cards and loans, the credit card companies offering rewards or incentive programs to those consumers who use their credit card for purchases, and the use of a credit card for everyday expenses which can really add up because of high interest rates. Those are just a few of the many reasons why we as Americans should not own credit cards. Many of credit card companies target “new” adults, meaning they just turned 18. “They will be inundated with credit card opportunities, they’ll be inundated with a lot of special offers and I think at a young age, they need to manage these obligations. They need to learn they should not be spending more than they earn,” says Sheryl Reis, the branch manager of Vancity (2007). At that point most 18-year-olds are eager to take advantage of their new rights. They get their first credit card and most lack knowledge on the terms and conditions and the amount of responsibility that comes along with the piece of plastic. Some young adults use their cards as though it is free money. The misuse of credit cards is one of many reasons why the amount of debt in America is increasing. According to the Federal Reserve Bank (2010), the amount of credit card debt at the end of 2009 was $866 billion. Another way credit card companies hook consumers is that they offer rewards and incentives for those who use their credit card for everyday purchases. Have you ever wondered why credit card companies offer rewards and incentives to use their card' Aren’t they losing money' Credit card companies offer rewards and incentives to lure in new consumers and take old consumers from other companies. The marketing director of CreditCard.com, Ben Woosley, warns that “If you carry a balance month-to-month don’t even look at rewards cards, even if you have great credit you will have a higher APR versus a nonrewards card. The banks are essentially getting the people that pay interest to subsidize the rewards program. People that revolve balances don’t realize that. The people who pay off their balance every month get a free ride” (2008). They do not lose any money; in fact, they earn more money off rewards customers. Oftentimes, there is an annual fee just for possessing a rewards card. Most credit card companies offering rewards charge one to two percent more in interest than the interest rate of a standard credit card. What most credit card companies do not want you to know is that earning and receiving you rewards is conditional. According to Kelli B. Grant (2011) “If you don’t pay on time, you may permanently lose your rewards earnings for the month” (p. 108-110). In 2009, the average interest rate on credit cards was at 13.1%. The current average on interest rates is at 14.4% (Good Housekeeping, 2011) If you have a credit card today and you make a $2000 purchase, with the interest rate at 14.4%, you will be paying about $160 in interest. Using credit cards for everyday expenses can add up because of the high interest rates and that can make it easy to fall into debt. If you are using a credit card to get gas, buy groceries, go clothes shopping, etcetera, you are paying interest on every purchase and that can add up. There are even some companies charge you a “service” charge for using your credit card. With the current average interest rate at 14.4%, a strategy that some companies will use to hook you would be the 0% APR offer or they will offer you “low interest” rate credit cards. APR is an acronym for annual percentage rate. It is the amount of interest that the card holder will pay in a year in addition to their regular balance. There are two types of credit card APR, fixed and variable. A fixed APR means that the percentage does not change except under special circumstances. Your APR can be changed if you request a reduction from the credit card company and it is granted or if you make a late payment. Making a late payment allows the company to raise the APR under your contractual agreement. A variable APR fluctuates based on the prime interest rate. Another method they use to hook you is the negotiable interest rate. Although you can negotiate a percent or two lower than the average interest rate, those rates expire and your interest rates are raised back to the company’s interest rate (1994). Have you ever seen or heard the commercials or online advertisements from companies who are willing to help you get out of debt or consolidate your debt' Why do you think these companies exist' They exist because there are so many Americans who have credit card debt. These “debt relief” companies claim to be nonprofit but they make their money at the consumer’s expense. The owner of United Credit Services, Mickie Rogers, said “We’ve had several people call and say that they had bad experiences where they pay all this money up front, and the (debt –consolidation companies) aren’t paying their bills.” She goes on to say “Then they manage their money, and they don’t pay on time. It ends up hurting their credit” (2009). The best way to avoid debt is to stay away from using credit cards and resist the temptation of falling for the rewards, low-interest rates, and 0% APR scams. If you are going to have a credit card and believe that you would use it responsibly, you should be well educated on the terms and conditions as well as all the fees that you will be charged. That should help you make a more informed and responsible decision on when to use your card or not.