Credit card debt gets more expensive as lenders raise fees

The credit card industry is a profitable one, and the last few years have been very good ones. The reform of bankruptcy laws and the low interest rates of the last five years have made it very profitable, indeed, to be a credit card company. Overall interest rates may be low, but the rates offered by credit card companies have remained high. The difference between the two has been very good for the bottom line. 

These companies make a lot of money by lending money at interest, but they also make money from fees. Over the last few years, many companies have offered low-interest “teaser” rates to their customers in order to entice them to move their credit card balances to new accounts. These rates were often as low as zero percent, although such offers usually included some stiff requirements. If the customer failed to meet the requirements by paying late, for instance, higher fees and interest rates were added to the balance. Still, those transfer offers were useful for borrowers who were disciplined and the fees charged were reasonable.

Times have changed. Interest rates are on the rise and that means that profits are down. If you cannot raise interest rates, then the only other option to increase profits is to increase fees. Late fees already run in the $39 range, so other fees that have been historically low are being raised instead. The most common increases are coming in the area of balance transfers. In the past, there was a fee associated with moving a balance from one account to another, but that fee was generally capped at $75 or so. No matter how much money you moved, be it $500 or $50,000, the maximum charge was $75. That is changing now.

Most card issuing banks have now removed their caps for balance transfer fees. If the fee for moving a balance from an old account to a new one is 3% of the balance, that now applies, without limit, to the entire balance. If you are moving $500, the fee will be $15. If you are moving $50,000, the fee will be $1500. Don’t expect these increases to be declared in bold print on the front of the envelope, either. As usual, these fees will be buried in the fine print of the bill, where few, if any, people will read it.

There are times when it can be beneficial to move a balance from one credit card to another, and in certain circumstances, it will still save you money. The trick is to find the deals with the best interest rates and the lowest transfer fees, and that may be difficult. Anyone interested in doing so is advised to shop around for the best available deal. The industry is in a constant state of flux, as they try to maintain the highest possible margin of profit. Competition still occurs, however, and the diligent consumer can still find ways to save.

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