Consumers often find themselves faced with tremendous amounts of credit card debt which they are not able to pay. In fact, Time reports that the average American is in credit card debt regardless of how good the economy is doing. Americans owed $935.6 billion in 2015, and the average American between the ages of 18 and 65 had an average of $4,717 worth of debt on a credit card over the course of this year. With many Americans making only the minimum monthly payment and the average credit card interest rate set at 15 percent, it would take 10 years to repay this average balance and the debtor would spent $18,155 in interest payments alone.
This is unaffordable, and many consumers who get into credit card debt find they are unable to get out because more and more of their money is wasted on credit card interest payments. Creditors who use underhanded tactics to trick consumers into getting into debt share a large part of the responsibility for this financial mess. Consumers who find themselves struggling with their bills should not hesitate to take advantage of the bankruptcy code provisions which allow a fresh start.
How Creditors Manipulate Consumers Into Debt
Lifehacker provided a comprehensive summary of the tactics creditors frequently use in an effort to get debtors to borrow ever more money. Some of these tactics include:
- Getting consumers to take on debt with 0 percent interest offers. While consumers are promised no interest for a limited time (typically six to 18 months), the promotional period runs out eventually. Most people keep credit cards they first opened because of zero percent offers… and keep charging on them, even when they are charged normal interest. Zero percent interest offers can sometimes be even more detrimental than just hooking consumers on credit. When consumers are offered an introductory zero percent interest deal on store purchases, they may sometimes be charged back interest on the full balance borrowed from the day they took the loan if they owe even $1 at the end of the promotional period. For example, a consumer who buys $1,000 worth of furniture sold at zero percent interest for six months would be charged six months of back interest on the $1,000 balance if the debt wasn’t fully paid off.
- Offering rewards deals. Consumers are incentivized to take on credit card debt by promises of financial rewards for their spending. Cash back, travel rewards, and merchandise rewards are common. The rewards programs aren’t always as good as they seem, with blackout dates and restrictions very common. Sometimes, consumers sign up for cards only to find they are not actually eligible for rewards. Those who carry a balance also generally pay much more in interest than the rewards are worth. Even people who do pay off a balance could end up spending more, as studies have shown that people are willing to spend more when they use credit cards as compared with when they use cash.
- Raising interest rates. Although there are some restrictions on raising rates on existing balances, there are also exceptions that creditors take advantage of.
These are a few different ways creditors try to trap consumers into getting into debt. If you’re in debt and cannot pay the balances on your cards, consider bankruptcy to find relief.