Need A Credit Card No Problem. And That s The Problem
Below is a MRR and PLR article in category Finance -> subcategory Credit.
Need a Credit Card? No Problem. And That's the Problem
Overview
Need a credit card? No problem! But that's precisely the issue. In a society where instant gratification is celebrated, credit is readily available to everyone, regardless of credit history. This easy access often leads to significant financial challenges for consumers who accumulate debt they can't repay.
Historical Context
Once upon a time, credit was reserved for the wealthy, and debt carried a social stigma for everyone else. The poor and middle class faced strict scrutiny when applying for loans, with debtor's prison looming for those who failed to repay.
Current State of Indebtedness
Today, Americans are more indebted than ever. The total owed for cars, homes, and credit cards nearly matches the annual after-tax income, as reported by Business Week. Meanwhile, credit card companies have over $3 trillion in unused credit lines available?"around $30,000 per American family.
Credit Card Usage
According to Fair, Isaac and Co. (FICO), the average consumer has access to $12,190 across all cards. While more than half of cardholders use less than 30% of their credit limit, one in eight use 80% or more, and one in ten carries a debt exceeding $10,000. Cardweb.com estimates that 20% of American credit cards are maxed out.
Targeted Marketing
Credit cards are tailored to various demographics, from students to small business owners. People with good credit can access lines of credit with interest rates around 5% above the prime rate and often qualify for Platinum cards. Nearly half of all cards are Gold cards, requiring just $10,000 in annual income to qualify.
Prime vs. Subprime Markets
The credit industry categorizes consumers into "prime" and "subprime" markets. Elite borrowers can get lines of credit with 12% interest on Platinum cards, Gold cards average 15%, and standard cards around 17%. The subprime market began in the 1990s, targeting those with credit scores below 500, little credit history, or recent bankruptcies.
Subprime cards often come with high fees and interest rates exceeding 30%. Unlike "secured" credit cards, which require a deposit, these cards attract high-risk customers. Borrowers may pay upfront deposits from $99 to $5,000 as collateral.
Controversy and Exploitation
Many critics argue that subprime lending exploits the poor, reminiscent of past banking scandals. While lenders risk higher losses?"around 15% to 17%, compared to the industry's 6.5%?"some companies like NextCard have failed to recover, closing their doors.
Economic Impact
Despite a thriving American economy in recent years, marked by GDP growth, the reality for many is grim. Real wages have declined since 2000, while health costs have surged 40%. Middle and lower-class Americans face financial strain, often unable to settle their debts.
In 2004, a record 1.3 million cardholders declared bankruptcy. In response, stricter bankruptcy laws were enacted, but credit companies continued aggressive marketing efforts, with a staggering 5 billion solicitations?"50 per American household?"many targeting the subprime market.
The Case for Debit Cards
Debit cards emerge as a responsible alternative. Branded with Visa or Mastercard logos, they function like credit cards but withdraw funds directly from the user’s bank account, preventing overspending. No monthly fees, no interest charges, and no risk of debt make them a viable solution in a credit-saturated environment.
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