Credit Card Crunch Coming

SUBHEAD: It may be time to wrap up your credit card purchases.

by Juan Wilson on 3 March 2009 for Island Breath

You may have noticed - credit card companies are cutting back on credit available to customers. They are raising interest rates. They are raising minimum payments. They are offering small rewards for customers who quit using and pay-off accounts.

Basically those who offer credit cards are terrified that they heading toward a massive failure of the consumer credit business in America. They think that danger is immanent.

A few super-banks, such as Citi-Bank and Bank of America, handle most of the VISA and MAsterCard consumer credit. They are now being called "zombie banks" because they are operational only by hundeds-of-millions of dollars in bailouts from the U.S. Government. These banks are insolvent, and they think you will be too.

I have three credit cards. An American Savings Bank VISA, an American Express Gold Card and a CaptialOne MasterCard. The VISA card is a debit card and is not yet threatened, but the other two are a bit wobbly.

American Express recently announced it would offer $300 to customers you did not use the card enough, or had too much unpaid balance. It would also reduce limits and raise interest charges. In other words, AmEx is looking for people who don't use the card too much or too little - and wants to charge them more to everybody. See "AmEx and Chase cut limits" at

I have had a card with CapitalOne for years. It had a $15,000 limit. I have maintained a good record with the account and by interest was only 4.99%. I just received a Terms of Service notice stating new my interest rate (backdated to January) was 13.99% and that if I screwed up a payment the interest rate would be 29.99%... unless I closed the account.

Your Buying Strategies

You may be in the same boat as I, or are about to be. The credit card companies are not going to give you any warning before changing your status. It'll be a done deal when it happens.

My suggestion is that you think about what you would do if your credit cards were not available in the near future. Many of us in Hawaii, and particularly on outer islands like Kauai, depend on internet shopping and express shipping that usually require credit card transactions.

There are some work-arounds you might consider. For now I am only using my Amex Gold card that requires full balance payments every month (at no interest). Otherwise, I have opened a PayPal account that can be fed from a conventional bank balance to make internet purchases. I do some shopping on Ebay and many vendors are set up to do business by US Postal Money orders. That is not as convenient as credit, but it works.

As soon as CapitalOne notified me about the Change of Terms on my account, I signed onto and bought two new solar panels. Those babies maxed out my credit, but are part of my personal stimulus plan and infrastructure improvement program. Afterwards, I closed my CapitalOne account.

Longer term, I imagine online efforts like CraigsList/Kauai, and attempts to establish a local currency will play a part as well. 
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