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February 27, 2005
Credit Card Offers Create a Vicious Cycle
Direct mail apparently works -- when it comes to credit card offers, that is. A recent article from eMarketer reports that 53% of card holders surveyed said they found out about their latest card through a mailing. The next highest percentage, just 11%, learned about the card from someone in a store.
Seeing this article prompted Joseph Sosville of Oxford, Michigan, to send me his analysis of how constantly switching to new cards that have low introductory rates is a vicious cycle for consumers.
Here is his email (with a few edits):
"This article does not address the 'why' consumer read so many credit card offers. It? very simple. A consumer wants the 0.0% interest for six or more months as it makes for smart spending. Think of it, if you go on a shopping spree or just rack up $1,000 in new merchandise at 12% or higher on your current credit card and take six months to pay for it, you're incurring at least $60 in interest.
But carrying credit card debt becomes a vicious circle. The only relief that category of consumer can get from this ongoing debt is by paying a lower interest rate. So this category of consumer goes after the new lower rate card and feels ?elievedfor a short period of time because they are not being clobbered by interest. After six months or so, the credit card offer of 0.0% expires and the ongoing rate kicks in at 12% or higher and the consumer is then looking for another 0.0% interest offer. Obviously the only way to do this is "read the credit card offers they get in the mail!
By now, you may be saying, 'So what else is new?'
The impact of these credit card offers is placing consumers at risk of having to pay a much higher, overall true cost of money (interest on credit card debt) for the merchandise they buy and put on a credit card.
They are also driven into a situation, wherein, if they have too many open credit cards and carry too much aggregated available credit, their credit score decreases. That once again, places the consumer at risk of having their ongoing interest rate adjusted upwards as they become categorized as an increased credit risk. Then they end up paying more interest, even as they payoff the carry over debt.
I believe that there needs to be a much more significant oversight and regulation of what credit card companies and banks are doing to the American consumer. They are flagrantly putting consumers at risk by saturating them with the availability of cheap credit (the bait) and then soaking them for a much more significant true cost of money."
Thanks for writing, Joseph!
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