Debt Free

Happy New Year! Hopefully it will be a debt free new year for you. What a game by Boise State! That was intense. It never gets old to see the underdog win, especially in a great game like the Fiesta Bowl, oops, sorry, I mean the Tostitos Fiesta Bowl. Unless of course, you had money on the Sooners, but that's a subject for a different post.

Have you ever noticed that, no matter the credit rating of the individual, almost everyone has new credit card offers stuffing their mailbox these days. It seems even those with marginal or worse credit aren't immune from the offers of shiny, new credit cards. Have you ever wondered why? Why would a company give new credit offers to individuals who've proved their inability to handle credit cards? Ahh, why indeed! Because it fits into their business plan, that's why.

It seems that, in an effort to maximize profits, many credit card providers have turned toward a heavily fee based business model. In addition to the hefty credit card interest rates the firms charge sub prime borrowers, the lenders are trying to maximize fee derived income. What better way to increase fees than to increase the number of credit cards held by debtors? Well, actually there are ways to go even further, if you are looking to maximize profits, and that's to encourage those who are already over extended to take advantage of new credit card offers. Why? Because with new credit card offers come another round of fees, some of the most profitable being the inevitable over the limit fees that will accompany the numerous credit cards cards. Now there's absolutely nothing wrong with businesses making a hefty profit. I'm all for it. But you should be very aware of this new trend.

You might expect that with numerous credit cards you'd have enough available credit that going over the limit wouldn't be that much of an issue, but that's the beauty of this subtle system. The credit card companies carefully structure the credit limits of the accounts so that none are very large. Instead of letting the creditor have a single credit card with a $7,500 limit, they'll give them a single card with a $1,500 limit, and then follow it up with a few more. In the end, the borrower will have five credit cards, instead of only one. This way it multiplies the opportunity for the company to generate fee based revenue. In addition, five cards much harder to manage than a single card, so those who are a bit disorganized, as many sub-prime borrowers tend to be, are more likely to be late on a payment. You know what late payments mean. That's right, more fees for the credit card companies. In addition, they will use that opportunity to further increase the interest rate the customer pays.

Some companies don't offer credit cards to sub-prime borrowers. According to one source, Chase and CitiGroup indicate they don't maintain the practice of giving multiple cards to such consumers. One who is guilty of the practice, and has actually elevated it to a fine art, is Capital One. The Cap will send out offers to sub-prime borrowers until every hill in the country is completely denuded. Some debtors have as many as five or six such cards.

If these offers keep ending up in your mail box, send them straight to the shredder. You want to avoid, at all costs, a situation where you fall behind on your credit card payments and are using one high interest credit card to pay off another. Hopefully you can recognize this little business tactic before you get sucked in, and manage to resist sending back the new card offer. Remember, straight to the shredder. Put your credit cards on auto pay for the minimum payment to help avoid credit card management problems that lead to late fees. If you're trying to get completely debt free, you definitely don't need more credit cards. What is in your wallet anyway?