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Tips for spotting potential credit card debt pitfalls

With holiday shopping in full swing, a reminder about responsible credit card spending and debt management might be well heeded. A recent article reminds us that consumers should be mindful of other types of credit card charges, as well. 

According to data from the Consumer Financial Protection Bureau, the ratio of card fees to account balances is lower than before the enactment of the Credit Card Accountability Responsibility and Disclosure ("CARD") Act of 2009. In practical terms, consumers are paying less in fees as a result of that legislation. More consumers are also paying off their credit card balances in full, around 27 percent compared to 20 percent before the recession.

However, there are several potential debt pitfalls, in spite of the protections provided by the CARD Act. One product is interest-free loans, such as private label cards that allow a consumer to purchase a big item with zero percent financing. Although such offers may provide for interest-free financing for a certain number of months, the interest rates after the end of the specified promotional period may be quite high, averaging around 25 percent.

Another product to watch out for is subprime credit cards. Consumers may receive offers through the mail regarding a pre-approved card. Unfortunately, rates for those cards can also be exorbitant, with the CFPB estimating that the typical subprime borrower paid fees and interest totaling over 40 percent of his or her balance in 2013 and 2014. 

Our law firm focuses on bankruptcy law. We understand which bankruptcy provisions might discharge credit card debt. However, our experience also allows us to offer debt management strategies to individuals who may not necessarily be ready to file for bankruptcy.

Source: Crain’s Wealth, “Looming credit card changes you need to watch out for,” Dec. 4, 2015

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