Credit Card Calculator

It’s a fact that many American families are struggling with credit card debt being compounded by penalty rates and other fees applied when they get behind on payments. The delinquent payment rate is going up steadily as the country struggles with a high unemployment and underemployment rate as the economy sluggishly recovers from the severe economic downturn of 2007-2009.

If you want to get out of debt, it’s important to have a plan, and the credit card calculations offered by various helpful Web sites can help you decide what sacrifices to make and what avenues to pursue to get you and your family back on sound financial footing.

Default a poor option

According to experts, the average American household owes about $8,000 in credit card debt. In the past two years, the total amount of debt owed by Americans to credit card companies has dropped by almost $100 billion, but that’s not entirely because people are paying off their debts. According to experts, about 90 percent of the dropoff can be attributed to chargeoffs, or credit card companies writing off bad credit card debts and referring them to collections. Paying off credit card debt is a better option, and by using credit card calculations supplied by a credit card calculator, you can accomplish repayment of your debts.

There are a number of reasons why just walking away from credit card debt is bad for you and the overall economy. On a macroeconomic level, escalating chargeoffs could contribute to instability in the financial services industry, causing banks to become insolvent, credit to freeze and overall economic growth to stall, exacerbating joblessness and other economic woes. By becoming delinquent on credit card payments, you’ll be subject to penalty rates and fees and may face collection action. If you deal with this debt by declaring bankruptcy, you could lose some of your assets and have a black mark on your credit record that negatively impacts your ability to secure loans and secure loans at favorable interest rates for years to come.

Calculating a plan

Using the credit card calculations provided by many Web sites such as that of the Federal Reserve and the Federal Trade Commission, you can sketch out repayment plans under a variety of scenarios. Many credit card companies also provide credit card calculations on their Web sites to better help their cardholders responsibly manage their credit.

The credit card calculations offered online will take into account your current balance, your interest rate and how much you intend to repay each month. More advanced credit card calculators can help you see how long it will take to repay your credit card debt under a graduated repayment system in which you increase your monthly payment over time. Some calculators will even break down your total repayment, showing you how much you’re paying in interest.

By using the calculations, you can chart your best course of action with regard to paying off your credit card debt. For example, you may choose to continue to make payments on your current credit card account, or after discovering how much interest you’re paying on that account, you may choose to transfer the balance to another account with a lower interest rate. Another option is to take out a bank loan at a lower interest rate.

Your repayment plan will be contingent upon your ability to stay current with payments, and avoid running up further debt.

Credit counseling

If analyzing credit card calculations isn’t your forte, you may want to consider seeing a credit counselor. A credit counselor can look over credit card calculations, your monthly income and bills and other factors to determine the best course for you to repay your credit card debt. With good credit card calculations and a viable plan that you can realistically follow, you can get out of credit card debt and improve the financial stability of your family.

Before using a credit counselor, you should check their credentials and inquire about their fees. While most credit counselors are honest professionals, there are also many fly-by-night shady operations in the credit counseling business.

While credit card companies generate large amounts of revenue through interest and fees from cardholders, they also draw income from interchange fees paid by merchants who accept their cards.

Interchange fees are essentially fees charged to merchants for the processing of credit card payments. The fees can run as high as 5 percent of every purchase, depending on the card company and the merchant. This is the reason why many merchants don’t accept some credit cards, or would prefer to be paid in cash or by check.

Interchange fees are big revenue generator for credit card companies. According to industry experts, the average American household pays about $337 in interchange fees as a result of their credit card purchases each year. This amounts to about $48 billion in revenue for credit card companies per year. In 2005, Visa and Mastercard, the two leading companies which control about 90 percent of the payment processing market for credit cards collected about $30 billion in interchange fees.

How it works

There are two key players in credit card issuance, the banks issuing the cards and the company handling payment. Banks provide the capital that’s lent through the credit cards, and the payment processing companies handle the transactions. That’s why your Acme Bank, Generic Bank or Omni Bank cards may also be Visa or Mastercard cards.

Merchants have agreements with Visa, Mastercard or other payment processors to accept their cards. For their work in processing transactions made with credit cards, the merchants must pay a portion of the transaction to the credit card company. The banks issuing the credit cards get a cut of this interchange fee, as do the payment processors (i.e. Visa, Mastercard, etc.).

According to industry experts, interchange fees have a very complicated price structure, which is determined by the type and brand of credit card being used, the size and business of the merchant, and the nature of the transaction being processed. The average interchange fee in the U.S. is about 2 percent of the value of the transaction, but some fees may be higher than this average. Online sales and telephone sales tend to carry higher interchange fees than other credit card transactions.

Controversy

Interchange fees have become a sore issue in the market, as they cut into merchants profits and contribute to inflation. In the U.S., the fees have come under investigation for alleged violations of antitrust and fair trade law.

Some economists argue that interchange fees lead to higher prices because merchants must increase prices to offset the cost of interchange fees. Refusing to accept credit cards isn’t practical for most businesses, as fewer and fewer customers are choosing to carry cash to pay for transactions. While large chains like Wal-Mart may be able to use their size to leverage reduced interchange fees, smaller businesses don’t have the muscle to pressure credit card companies into accepting such an agreement.

Merchants are also arguing that the costs to credit card processors that interchange fees are supposed to help defray have decreased as information technology has made payment processing easier. Despite the improvements in technology, the interchange fees have doubled in the past decade. Credit card companies claim that the interchange fees help offset the cost of rewards offers to clients, and that doing away with them would result in increased fees and higher interest to cardholders.

Several lawsuits have been filed claiming that the credit card companies interchange fee policies violate federal antitrust and price fixing law. Credit card companies have been extremely closed-mouthed about their interchange fees structure and policy, and only released this information to Congress after considerable pressure was exerted by lawmakers.

How other countries deal with interchange fees

Several  foreign countries have some strict regulations dealing with interchange fees. For example, Australia forbids interchange fees of higher than .05 percent of transactions and also allows merchants to tack a surcharge directly on the purchases of customers paying by credit card. The result has been a reduction in the use of credit cards for payment. The European Union has fined banks regarding interchange fees and is considering legislation to more tightly regulate interchange fees on the premise that these fees constitute price fixing by credit card companies and banks.

In the U.S., Congress has made hints that it may decide to examine possible legislation concerning interchange fees in the near future. The U.S. government has taken steps to regulate other perceived excesses of the credit card industry in recent months that target cardholders.