I am sure all of you have read the newspapers or watched the news and have seen the banks crying about the money they have lost and are losing with the sub prime mortgage mess. Banks lent money to people who couldn’t afford to pay it back, and then proceeded to not pay it back, leaving the banks left holding the bill.



What does this mean for consumers?


I won’t go into detail about the housing situation as that is a whole other issue on its own. The point is, with banks losing money through their mortgage investments and the current credit crunch; they are turning to other portions of their business portfolio to make up the losses. In other words, the interest rates on your credit cards will more than likely go up, regardless of your payment history.


Bank of America is one of the first large credit card issuers, 40 million U.S. accounts, to start raising rates. In some cases, they have doubled the interest, up to 28% on their customer’s accounts who have continually made their payment on time. Legally Bank of America is allowed to do this as long as they let you know ahead of time.


Based on an article from MSN, they are providing an option where the borrower can pay the account off at the old interest rate but they may no longer use the account.


The golden rule


If we took the time to read the back of credit card applications, we would probably never sign up for one. It is another classic example of the golden rule - they have the gold and they make the rules. If you continually run a balance on your credit cards you are at the bank’s mercy. Using credit wisely means only charging the amount you can pay off each and every month.


Who will this hurt the most?


It will be those who were already wavering on the ropes and trying to keep their head above water. Banks have yet again put pressure on people who can’t take it in the name of profits. Unfortunately, this population segment often takes the brunt of these types of actions, and that is unlikely to change any time soon. If your credit is damaged, you have no net worth, and a track record of poor financial decisions, you will continually be charged higher rates and be in the first group to feel the pinch.


Break the cycle


To break this cycle, the consumer has to stop treating credit as additional income and understand that going without the best and the newest will not be the end! I can appreciate credit cards being used when there is no other option to purchase necessities like groceries and medicine, but Banana Republic is not a necessity. Credit cards are dangerous in the hands of those who do not understand how they work or refuse to learn their lesson.



Rob Taylor   

Rob Taylor is a contributing author for A Straight Talk on Debt. Rob tells it like it is when it comes to the latest debt industry news and shares his advice on personal finance.