Why You Are Paying the Credit Card Bills of Others

This no doubt is really going to piss you off but if you currently carry a balance on your credit card then you are paying other people’s credit card bills as well.

Due to the recession and an unemployment rate that is at its highest level in nearly 30 years credit card defaults and write-offs are at a record high. To make up for those losses the credit card companies are passing them along to their cardholders in the form of higher interest rates.

Someone is considered to be in default if they have not made a payment for 60 days or more since their last due date. At that time the debt is a write off which means the credit card company doesn’t expect to see any of it. It is usually then sold off to a collection agency that will do anything within their power to collect as much of it as they possibly can.

American consumers currently are about $1 trillion in credit card debt with half of them making only the minimum payments on their balances each month. That tells us that the credit card debt for many has become unaffordable and defaults will continue to be high.

Relief will only come when we start to see the unemployment numbers go down and there are no signs of that happening as of this writing. The recession as defined in technical terms is a little over two years old now which would certainly define it as being prolonged or severe.

To find relief the credit card companies, because they are in business to make a profit after all, pass those defaults as much as they possibly can off to the other cardholders that do pay on time. They do this in the form of high interest rates, penalties when applicable and fees.

It is very similar to what happens in the automobile insurance industry. The people that have insurance pay much higher premiums because of the huge costs racked up by those who are uninsured. It’s hardly fair under either scenario but it is nevertheless the way things work.

There is a way that you will not be on the hook for others. If you can afford to pay off your debt in full you will no longer be paying the high interest rates charged by the credit card companies to help offset thier losses. Even if you pay down a portion of your balance you will be minimizing the amount paid out to subsidize those who do not pay.

Definitely something to consider. Especially if reading this article really makes you angry.

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