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Published On: Fri, Dec 1st, 2017

Credit card boom: Better days ahead for banks

There are many individuals in US that depend entirely on credit cards for their daily expenses. It is a good option as long as you are able to make the minimum payment on the plastic cards every month and make sure that the debt doesn’t pile up.

Although, it is a risky alternative to using cash, nevertheless, these credit cards have helped many to get them out of a financial crunch.

photo/ Michael Jarmoluk via pixabay

Credit card debt is on the rise

Recent studies have revealed that there has been a credit card boom in the US and the top banks in America; namely, JP Morgan Chase, Bank of America, Wells Fargo, and Citigroup are earning millions of dollars every month. Also, taking these 4 top banks together, their earnings calculated was recorded as USD$4 billion as pretax income on businesses from credit cards for the period between July and September, 2017.

News has also been trickling into the consumer and the credit card market that credit card debt that had shrunk remarkably owing to the financial crisis during the last few years has been picking up pace.

Surprising statistics

Outstanding credit card debt (total balance amount) that credit card borrowers shell out every month was recorded at a whopping USD1 trillion in the current year. And this was stated by the Federal Reserve. Also, the number of households in the US that have only one credit card has increased to 171 million, which has been recorded as the highest to hit the figure in years. This was reported by the much acclaimed credit reporting company, TransUnion.

How do banks earn from credit cards?

Basically, there are 2 ways in which banks earn from these plastic cards. They earn from every transaction that takes place through the credit cards (although, it is only a small amount).  And they charge fees for using the card and attract annual charges that can be around 15% on the outstanding balances that the credit card customers fail to shell out as they are supposed to end of every month.

Why has credit card use increased?

One of the main reasons that can be held responsible for the increase in use of credit cards is that the wages are not increasing as compared to increase in expenses and costs.

As such, in order to make ends meet, more and more households are banking heavily upon the plastic cards, credit cards to be precise not just for grocery shopping but also for buying daily necessities and expenses related to dental and medical care.

User sentiment

As per reports furnished by Bank of America, plastic card spending has increased by as much as 7% in the current year as the rise is remarkable as compared to the previous year. Also, individuals are spending and not hesitating to use the top credit cards, even if that means that these cards are attracting high rates of interest.

On one such instance, the well known JP Morgan recorded an increase in earnings from credit cards as compared to profits that they earn from traditional financial instruments and trading. This was the scenario last quarter.

As of May, 2017, the total household debt on plastic cards, was recorded at USD$12.7 trillion, which was slated as the peak in post recession era. On the positive side, the rising use of credit cards can also be seen as a growing economy and increase in affordability of households to run on plastic cards.

From the point of view of banks, it is a positive move too since these banks are being able to provide cards to consumers that are in need of them. However, using plastic cards is a good option, provided you don’t allow your credit card debt to get the better of you.

Author: Jimmy Simond

About the Author

- Outside contributors to the Dispatch are always welcome to offer their unique voices, contradictory opinions or presentation of information not included on the site.

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