These are hardworking people whose hours were cut, or the factory closed, who turned to a credit card to get through a rough month — which turned into two, or three, or six months without a job. These are parents who found, to their surprise, that their health insurance didn’t cover a child’s expensive procedure and had to pay the hospital bill; families who saw their mortgage payments jump and used the credit card more often to make up the difference.
These are borrowers who discovered that credit card debt is all too easily a one-way street: It’s easy to get in, but almost impossible to get out. It’s also, by the way, a lot of small business owners who have helped to finance their dream through credit cards and suddenly, in this economic downturn, find themselves getting hammered.
Part of this is the broader economy, but part of it is the practices of credit card companies. Contracts are drafted not to inform, but to confuse. Mysterious fees appear on statements. Payment deadlines shift. Terms change. Interest rates rise. And suddenly, a credit card becomes less of a lifeline and more of an anchor.
That’s what happened to Janet Hard of Freeland, Michigan, who’s here today. Where’s Janet? Right here. Janet is a nurse. Her husband is a pipefitter. They’ve got two boys. Janet and her husband have tried to be responsible; she’s made her payments on time. But despite this, Janet’s interest rate was increased to 24 percent. And that 24 percent applied not just for new purchases, but retroactively to her entire balance. And so, despite making steady payments totaling $2,400 one year, her debt went down only by $350 that year.
And Janet’s family is not alone. Over the past decade, credit card debt has increased by 25 percent in our country. Nearly half of all Americans carry a balance on their cards. Those who do, carry an average balance of more than $7,000. And as our economic situation worsened — and many defaulted on their debt as a result of a lost job, for example — a vicious cycle ensued. Borrowers couldn’t pay their bills, and so lenders raised rates. As rates went up, more borrowers couldn’t pay.
Millions of cardholders have seen their interest rates jump in just the past six months. One in five Americans carry a balance that has been charged interest rates above 20 percent. One in five.
I also want to emphasize, these are costs that often hit responsible credit card users. Interest can be charged even if you pay your bill on time. Rates can be increased on outstanding balances even if you aren’t late with a payment. And if you sit — if you start to pay down your balance, which is the right thing to do, a company can require you to pay down the debt with the lowest interest rate first — instead of the highest — which makes it much harder to ever get out of the red.