People are Paying Off Their Credit Cards

Read the entire article here (may require a WSJ membership)

The title of this article in the Wall Street Journal is extremely misleading. You have to love hearing from the creditors’ perspective though. Apparently, in the past when “interest rates crept up…fewer cardholders could afford to pay down balances.” Richard Srednicki, who runs the CC business at J.P. Morgan Chase & Co. had this to say (you’ll love this):

“It is a tougher business if payment rates continue to stay up and consumers continue to pay off more. It’s something we’ve got to understand and work at.” (emphasis added)

You’ve got to love that huh? Straight from the snakes mouth. They need to work on extracting more money from you.

Here’s the disconcerting part about the article though. Consumers aren’t really paying off their balances. They’re just shuffling them:

“Although consumers are using plastic for more of their daily purchases, they are giving card issuers fits by juggling their debts more shrewdly…and in recent years, as real-estate values soared and mortgage rates fell sharply, more consumers wiped out credit-card debts altogether by borrowing against their homes.”

Wonderful. Let’s all just cross our fingers, knock on wood, and pray that those who did consolidate credit card debt with home equity vowed they would never use credit cards irresponsibly again.

The Journal does redeem itself a bit further in the article to give us the real dismal picture of the American consumer’s situation:

“American consumers have not curbed their appetites for borrowing. During the fourth quarter, 13.86% of disposable personal income of Americans was consumed by debt payments of all kinds, up from 12.77% five years earlier.”

If you’ve read much over here at you’ve realized that I hate credit card debt. Do I hate credit cards? Those inanimate plastic things? No. Do I hate the marketing tactics used by the credit card companies? Yeah. Do I use a credit card? Yep. But only because I follow all five of these rules:

  • The balance is paid in full each month.
  • You have a fully-funded emergency fund at ING (or some other high-interest savings account).
  • You don’t have any debt except your home.
  • You are contributing at least 10% pre-tax to retirement.
  • You’re actively budgeting your money each month.

So how does a snake cope with falling balances (falling profits)?

“[The Snakes] are trying to replace lost interest revenue by increasing late-payment fees and raising interest rates for customers unable to pay their bills in full.

Now doesn’t that just make you feel all warm and fuzzy inside? If you’re a customer that’s maybe gotten in over your head, the Snakes are going to raise the interest rate they charge you to make up for the lost interest revenue experienced with other cardholders.

What’s in your wallet? A backstabbing snake.