Here's a Real Elephant in the Room.

You see that thing up there?  How many of them do you suppose you have in your wallet?


If you've had yours for several years, you probably got them when the Prime Rate was no less than 4%, but actually probably a bit more.


The average interest rate you agreed to pay for use of your credit cards approached 19%.


So the bank issuing the card had a 60 basis point spread.  For every dollar you charged, to pay it back at the end of a year cost you $1.19. The bank made 15 cents of that.


But since the Recession of 2008, banks have paid less than 1% for money they borrow from the Fed.  Were your credit card rates lowered to, say, 16%?


By retaining this enormous "spread gift," the credit card companies have been able to take greater risks, issuing cards and for maximum borrowing amounts that they wouldn't have considered prior to the Recession of 2008.


According to  the U.S. Census Bureau and the Federal Reserve,  the American households owe on average a staggering $16,425 in credit card debt, and that amount has risen 10 percent since 2013.


Collectively, we owe nearly $1 trillion in credit card debt, on which we pay an average interest rate of 18.76 percent, or about $1,292 per household each year.


That the Fed didn't require cerdit card companies to reduce their interest rates so that they remained in parity to the spread they had before is the Elephant in the Room.


It has a great deal to do with the reason there is no mention of inflation, but there really is. And at some point, as Fed rates rise, the pressure will be on for the piper to be paid.




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Comment balloon 6 commentsBILL CHERRY • November 08 2017 03:21PM


Some people will complain about the price of some item but not blink an eye at 18% and more

Posted by William Feela, Realtor, Whispering Pines Realty 651-674-5999 No. (WHISPERING PINES REALTY) about 3 years ago

Bill point well made. Best thing to do is pay cards off every month, if you use them.  I like cash myself but for business we do use a card to keep track of everything but it's paid off every month,

Posted by Anna Banana Kruchten CRS CRB, Phoenix Broker, 602-380-4886 (HomeSmart Real Estate BR030809000) about 3 years ago

We keep zero balances on cards and use the points that goes far beyond the annual expense for the cards. We also only use three.

Posted by Joe Pryor, REALTOR® - Oklahoma Investment Properties (The Virtual Real Estate Team) about 3 years ago

Hi Bill - Like many others, our use of credit lines has almost completely disappeared since 2008 - I think the only ones we've had anything to do with were 0 interest short-term deals we paid off promptly.

Posted by Dick Greenberg, Northern Colorado Residential Real Estate (New Paradigm Partners LLC) about 3 years ago

Hi Bill- same as the others. The only credit cards we use are for convenience and we keep a zero balance but do use the points. 

Posted by Kathy Streib, Home Stager - Palm Beach County,FL -561-914-6224 (Room Service Home Staging) about 3 years ago

"But since the Recession of 2008, banks have paid less than 1% for money they borrow from the Fed.  Were your credit card rates lowered to, say, 16%?"

I ask myself that same question everyday, Bill!

Posted by Myrl Jeffcoat, Greater Sacramento Real Estate Agent (GreatWest Realty) about 3 years ago

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