Bank credit card average rate falls below 16 percent

November 07, 1993|By Knight-Ridder News Service

Interest rates on bank credit cards broke through a historic barrier last month, but millions of Americans continue to pay "outrageous" rates.

As a result of a 2-year-old rate war, the average interest rate on bank cards slipped below 16 percent for the first time in October, settling in at 15.98 percent, according to the monthly survey of about 500 issuers by RAM Research Corp. of Frederick.

But analysts add that the unweighted average -- which measures rates according to the issuers' market share -- was much higher at 17.01 percent. That means that, although issuers have introduced cut-rate cards, a huge proportion of customers are standing pat with cards charging much higher rates.

"There are still a lot of consumers who are either hardheaded, stupid or unthinking," said Robert B. McKinley, president of RAM Research. "There's no reason in the world for someone to pay 19 or 21 percent."

The rate war began during the recession, when a handful of issuers wooed customers on price. Further cuts came after President George Bush and Congress made overtures to cap rates in November 1991.

Since then, there has been a steady flow of new cards offering low rates, no fees and benefits.

Even so, millions of Americans are paying "outrageous" rates, said Gerri Detweiler, executive director of Bankcard Holders of America in Herndon, Va.

Americans owe about $255 billion in revolving debt, with about $202 billion owed on bank cards such as Visa, MasterCard, Discover and American Express. They owe about $30 billion more on retail credit cards and gasoline cards that generally haven't budged on their rates.

Ms. Detweiler says consumers can lower their interest charges in two simple ways:

* Shop for lower-rate bank cards, starting with a call to the current issuers. Many issuers will cut their rate or waive fees to keep customers.

* Holders of more than one card can transfer the balances to the lowest-rate card -- especially balances at stores and gasoline companies that charge 18 percent to 24 percent. This strategy works only if the consumer stops charging with the cards paid off, however.

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