Credit Card and the American Economy

Credit Card and the American Economy

Introduction

A credit card is an electronic method of payment introduced by banks. It is intended to remove the need of paper currency and ease things up with plastic money for the customers. The bank allows the customer to spend up to a preapproved limit of money, which is then paid back with a percentage of interest (Hillstrom & Hillstrom, 2002). With expansion goals in mind, the two major Credit Card companies including Visa, American Express and MasterCard started extensive promotional campaigns. Most famous taglines of that period include Visa's “It's Everywhere You Want to be” and MasterCard's “There are some things you cannot buy. For everything else, there's MasterCard”. Falling into their marketing trick, majority of United State's population decided to spend money they never owned through Credit Cards. As per recent records, there were 609.8 million credit cardholders in United States (Woolsey & Schulz, 2008).

Discussion

Consequences of the Problem

Unfortunately, with the increase in the number of credit cardholders increased the average debt on households with a credit card up to $15,956 (Woolsey & Schulz, 2008). One of Credit Card's unsatisfied customer Kim Capp (2004) quotes “Owing money through using Credit Card is just like legal loan sharking where customers are in total trouble once they hop in” (Frontline, 2004). Businessmen and entrepreneurs take credit card loans for starting their business and hope to settle with better profits, but eventually a point comes when the interest rate exceeds the profit percentage by leaps and bound. At that point, the whole business falls like a house of cards. There are thousands of people who have destroyed their assets and spend their entire savings on paying back their Credit Card Loans. Some interesting facts that reflect or relate with the consequences include:

As per a practice called “Universal Default”; Even if payments are made on time, the bank can increase the interest percentage if the customer gets late on some other payments or even if the Bank thinks they have taken too much loan (Frontline, 2004). Keeping this in mind, the banks are charging an average of 12.78 percent interest per credit card.

Credit Card users receive collection calls & letters, negative credit report, low credit score and even lawsuits once the banks have fully exhausted their assets and ability to pay.

Being exposed to multiple debts to the Credit Card companies, customers face emotional instability and ...