Consumers should educate themselves about credit cards

February 3rd, 2010 | by admin |

Personal finance experts have warned consumers for months that new credit card reforms will not give them a one-size-fits-all solution to their financial woes. In fact, for those struggling with debt, the best idea may be to try to use cards as rarely as possible to avoid paying too much in interest and other charges.

Consumers can gain more insight into the credit card industry from a recent op-ed piece published in the Washington Post by author Robert D. Manning, who explores some of the myths that have built up around it in past years.

For example, Manning notes that credit card debt as most people know it only began to emerge in the early 1980s as banks aggressively pushed for an end to federal and state usury laws.

Another little-known detail of the industry, according to Manning, is that about two-thirds of interest and penalty free revenues generated by card companies come from about one-quarter of all customers. In turn, about half of all accounts do not actually create significant revenues for lenders.

Manning also reports that about 60 percent of all credit card accounts are run by the top three lending companies, noting that some have raised anti-trust concerns as a result.

While federal law will protect consumers from certain practices like abrupt interest rate hikes and penalty fees, many people have already fallen far behind on debts and have seen their credit score slashed due to factors like high unemployment.

With all of these things in mind, more consumers have begun using cash and debit cards to pay for their transactions, while also concentrating more on paying down their current balances and freeing themselves for good from high interest payments.

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Cash may be the best way for people to avoid cumbersome fees and interest rates.

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