Reining in credit cards

Face it: The banks or Congress aren't going to do anything about it. You're going to have to take matters into your own hands if you want to rein in high credit card costs this holiday season.

The nation's banks, which used to claim that credit card rates had some sort of correlation to overall market rates, no longer use that argument. Instead, they cry that they won't make it financially if they're forced to lower rates.


That's right. Inopportune loans to developers, businesses and foreign countries are weighing so heavily on their balance sheets that they have to make up the difference by being loan sharks.

The reason Congress brought up the issue of credit card rate caps was that, as interest rates on most everything decline, banks haven't lifted a finger to make even a minor adjustment in credit card rates.


Any pressure to cut rates was, of course, squelched by a 120-point one-day drop in the Dow Jones industrial average, supposedly based on the logic that banks will take a nosedive if card rates aren't kept high.

President Bush, who had argued that card rates should be cut to stimulate the economy, also felt an across-the-board rate cap would be too damaging. That may be true, but financial institutions, were they at all interested in the fate of the American people during recession, could've made at least a modest effort to keep card rates in line with overall market trends.

If rates must be kept high to subsidize card holders who get too deeply in debt and can't meet commitments, perhaps such consumers should've undergone more extensive credit screening in the first place. Should everyone who makes a purchase be given credit? Must our mails be crammed with endless card offers?

Consider the economic equation presented to the consumer:

The average bank credit card interest charge is 18.8 percent, which is no longer tax-deductible. Worse yet, credit cards issued by department stores often require more than 20 percent. Average return on a bank one-year certificate of deposit is less than 5 percent.

It doesn't take much calculation to realize that it's dumb to run up big credit card bills. The consumer is being gouged. The average American, according to the Nilson credit industry report, owes $2,474 in credit card debt. At 18.8 percent, that's more than $465 in annual interest payments. At 14 percent, it comes to $346. Three-fourths of credit card holders maintain a balance, up from 50 percent five years ago.

The bottom line is that you should try to use cash when possible this holiday season. Don't be swayed by temporary low-rate or delayed-payment holiday deals from department stores.

Come up with a basic budget for how much should be spent on various gifts. At the end of each shopping trip, sit down and add up the sales slips to see if the budget was met. Keep only one or two credit cards in your wallet, thus lessening temptation.


For example, Simmons First National Bank of Pine Bluff, Ark., offers a 9.5 percent variable rate with $25 annual fee and 25-day grace period for payment. This and many other attractive low-rate credit cards can be obtained by out-of-staters if you contact the banks directly. For a list of the nation's lowest-interest bank cards, send $1.50 to the non-profit Bankcard Holders of America, 560 Herndon Parkway, Suite 120, Herndon, Va. 22070.