According to a Reuter’s story, U.S. credit card defaults continued their rise in April, with both Citi and Wells Fargo reporting double digit credit card loss rates.

Citi led the default pack with its charge-off rate reaching 10.21%.  Wells Fargo came in a close second, with a 10.03% charge-off rate.  Other large issuers, including Chase and Discover, reported default rates in the low 8% range, slightly below the current 8.9% unemployment rate.

While this is obviously bad news for the banks, it is really bad news for consumers.  As credit card companies try to cope with excessive loan losses, credit availability may decrease even more than currently depressed levels.

Additionally, consumers looking for 0% credit cards are likely to find these offers more difficult to come by.  Continue Reading »

I’ve been writing about default rates recently, as banks have been slapping people with these astronomical penalties with great frequency lately.  In the past, a consumer with good credit and a solid history of making payments on time could often be late once and not be penalized with a 29.99% default interest rate.  This is not the case anymore.  

So, were the late Johnny Cochran, former lawyer for O.J. Simpson, alive today, I’m pretty sure he’d say something like this:  IF YOU ARE LATE, YOU WILL PAY THE DEFAULT RATE. Continue Reading »

As I wrote earlier, the average default rate is about 29.99%.  In that article, I quoted the standard, and complicated, language about default rates found on a typical credit card application.  Today, I got a glimpse into what the future of credit card terms will look like when my wife got a Citi 0% credit card offer in the mail.

In this Citi offer, the language was plain and simple.  Here’s what they wrote: Continue Reading »

Hidden deep in the fine print of most credit card applications is a number so obscene, its hard to believe it exists.  The number I speak of is the default rate, and if you are slapped (or perhaps, punched and kicked) with this interest rate, paying back your credit card can become a nearly impossible task.

Before we get into the NC-17 rates, we’ll first look at a few ways a person could end up in credit card default hell.  The standard line, as taken from a Chase credit card application, goes as follows:

“Your APRs may increase if you default on this account for any of the following reasons: We do not receive at least the minimum payment due by the date and time due; you exceed your credit line, if applicable; or you make a payment to us that is not honored by your bank. Your APRs may increase as of the first day of the billing cycle in which the default occurs. We may consider the following factors to determine the default rate: the length of time your account has been open; the existence, seriousness and timing of defaults; other indications of your account usage and performance; and information about your other relationships with us, any of our related companies or from consumer credit reports.” Source:  https://www.firstusa.com/cgi-bin/webcgi/webserve.cgi?page_type=appterms&card=C9YH

In a nutshell, the disclaimer above states that if you miss a payment, you can have your interest rate raised to what is often the highest rate allowed by law.  As of April 2nd 2009, here are the default rates for major issuers:

Chase:  Default APR up to 29.99%

CitiBank:  Default APR 29.99%

Discover:  Default APR 29.99%

And I guess you get the picture.  If you are in danger of credit card default, you must act as quickly as possible to avoid it.  Using a credit card calculator at the FTC, I learned that a person with a $5,000 credit limit paying a 29.99% interest rate will need 12 years to pay off their debt if they only make the minimum payment, and the total interest will add up to $4900.  Essentially, you’re looking at a doubling of debt very quickly.

While banks and credit card companies have been loath to help consumers, often doing everything they can to push them into default, if you get hit with a default rate, you should try to contact your credit card company and work out a payment plan.  You could also try transferring your balance to a new card.  However, you may not get approved for a balance transfer if your default account has been reported to a credit agency.

A third option is to contact a credit counseling service.  This can be a dicey proposition, as there are both good and bad companies in this arena.  Because of this, we do not recommend any particular credit counseling service.  However, we do have a few tips on companies to avoid.  For instance, any company that offers to get your debt reduced should be considered dicey.  For the most part, a good credit counselor will work with your creditors to get your interest rates lowered substantially.  This can help you save thousands on interest without wiping out your credit score.

Ultimately,  falling into credit card default can be a nightmare that can take years to unwind.  However, it is possible to pull oneself out of this whole with quick, decisive action.