Banks are diving into the credit card business again after being burned during the credit crisis by high rates of default. Should consumers do the same thing? This is a vicious cycle that we are seeing all over again. However, this time the costs are much higher.
My concern is that credit card companies are marketing masters. I don’t think that there has been another industry so good at luring consumers through the front door with their marketing traps.
Pre-financial crisis, the fine print was tricky and dangerous. Post-financial crisis, the fine print is just plain expensive. Consumers will now see extremely high annual fees in addition to high variable rate interest rates. So, interest rates will start off high and as the interest rates in the market rise, so will these credit card rates.
The notion of taking out a new credit card and using it to carry a balance is a very bad idea. The notion of 0% interest for a short time period then regular terms and conditions take over is another really bad idea. The notion of good balance transfer offers is yet, another really bad idea.
Banks and credit card companies are basically saying that they will be glad to issue new credit cards; however, the credit has to be decent and borrowing from them will be a lot like borrowing from a payday lender – extremely expensive.
These new offers are for people who are trying to establish credit or those who need a credit card for convenience. Both groups have one thing in common. They are not going to carry a balance. Will it be expensive? Yes; however, it will be expensive for everyone to carry credit. If you are carrying a credit card of any type, expect the annual fees to go up. It is just one way that they have found to raise fees that is acceptable with regard to the new laws.