College seniors are graduating with an average credit card balance of $4,100 – up from about $2,900 in 2004 – and much of that debt is directly related to their education expenses, according to a survey from SLM Corp.

The Reston, Va.-based student lender says college students used credit cards last year more than ever before, with nearly one-third of those surveyed charging direct tuition costs.

In all, 92 percent of undergraduate credit cardholders charged textbooks, school supplies and other direct education expenses, charging an average of $2,200 on education-related expenses, more than double the average of $942 in a 2004 survey.

“Too many students are at risk of overpaying for college by pulling out credit cards to pay for textbooks or even part of their tuition bill, instead of using less-expensive financial aid to cover these items,” said Marie O’Malley, consumer research director for Sallie Mae (NYSE: SLM).

The survey found that half of today’s college students have at least four credit cards, and only 17 percent said they regularly pay off all their balances each month.

Consumer borrowing plunged in February by more than analysts expected as Americans cut back their use of credit cards by a record amount.

The Federal Reserve said Tuesday that consumer borrowing dropped at an annual rate of $7.48 billion in February, or 3.5 percent, from January. Wall Street economists expected borrowing to slide by only $1 billion, according to a survey by Thomson Reuters.

The decline was led by a record drop in borrowing on credit and charge cards, which fell at an annual rate of $7.8 billion, or 9.7 percent. That is the sharpest drop in dollar terms since federal records began in 1968, and the steepest percentage fall since 1978.

The report shows consumers reluctant to ramp up spending as employers shed millions of jobs and the economy is mired in a recession.

The economy is affecting everyone. As people loose their jobs or face paycuts or even loosing their home, everyone is being frugal these days.

The use of credit cards is so prevalent in our society that it is almost unthinkable to see a drop in their use. We ourselves use credit cards to pay for everything. Of course, we always pay off our bills each month. Even our spending has come down significantly as we face uncertain future in regards to our jobs and when the economy will recover significantly enough for us to be comfortable in upping our spending again.

Given this situation and general public’s fear of the future, it comes as no surprise that credit card use has dropped 8%. What is surprising is that it only dropped 8%. I guess some of it is offset by the fact that people have lost income and are using the credit cards as temporary income.

The average annual interest rates for most of the popular credit card types went up again for the fourth straight week.

This applies to all the popular types of credit cards like low-interest credit cards, balance transfer credit cards and cash back credit cards.

For low-interest credit cards, the average APR jumped up from 11.59% to 11.62%. Low Interest credit cards are offered to people with strong credit history.

For balance transfer credit cards, the average APR jumped from 13.12% to 13.15%. Balance transfer credit cards are usually used by people who are paying higher interest rates on credit balances and want to lower their monthly payments.

For cash back credit cards, the average APR jumped from 13.75% to 13.82%. Cash back credit cards are one of the most popular types of credit cards where the rewards are in from of a cash back.

Credit card companies can get away with much more than you’d think. A ”fixed-rate” credit account only means that it doesn’t fluctuate according to an index, such as the Federal Reserve’s prime rate. It does not guarantee that your interest rate will remain the same in perpetuity.

Generally, when your interest rate is hiked, you receive an ”opt-out” notice, which gives you a 15-day advance notice of the change and the option to close the account and pay off your balance at your old rate. However, the 15-day rule doesn’t apply if the rate hike is due to a delinquency.

Many consumers prefer to keep their cards after getting rate-jacked for fear that closing an old account, which adds longevity to credit history, may hurt their credit score. This may be true, to some extent, if you don’t have many other credit cards or just started using credit. However, paid, closed accounts stay on your credit report for up to 11 years, depending on the reporting bureau (Equifax, seven to 11 years; Experian, 10; TransUnion, five).

Our advice: If you feel that the credit card company is being unfair, close the account in protest. If you really need the extra credit line, apply for another card that will give you better terms.

The average interest rate for most credit cards went up last week. This applies to all the popular types of credit cards like low-interest credit cards, balance transfer credit cards and cash back credit cards.

For low-interest credit cards, the average APR jumped up from 11.43% to 11.52%. Low Interest credit cards are offered to people with strong credit history.

For balance transfer credit cards, the average APR jumped from 12.93% to 13.05%. Balance transfer credit cards are usually used by people who are paying higher interest rates on credit balances and want to lower their monthly payments.

For cash back credit cards, the average APR jumped from 13.64% to 13.67%. Cash back credit cards are one of the most popular types of credit cards where the rewards are in from of a cash back.

The nation’s big bank continue to take a beating on the public relations front. The Associated Press reported JPMorgan Chase, Bank of America and other companies that have taken federal bailout and investment funds charge users for using debit cards that provide unemployment compensation funds. The rules vary buy, but in some cases allow the banks to charge overdraft fees, if funds withdrawn exceed the balance - even though the automatic teller machine can be programmed to not offer the excess funds. Such fees have emerged as a major source of income.

Delaware is still believed to issue checks.

CONSUMER groups have slammed banks for not immediately passing on the full Reserve Bank interest rate cut on their credit cards.

The Commonwealth and ANZ were reviewing their card rates yesterday, while Westpac and NAB will reduce rates on only some cards.

Nicole Rich, of the Consumer Action Law Centre, said there was no reason for the high rates on credit cards, the Herald Sun reports.

“Of course, credit card rates are higher than home loan rates to reflect a higher risk, but there is no excuse for rates to be as high as they are,” Ms Rich said.

“People are trying to pay down their debt as much as possible, but higher interest rates are making it hard for those who are really struggling.”

Christopher Zinn, of consumer advocate organisation Choice, agreed.
“The gap between the home loan rate and the credit card rate has probably never been wider, and that equals profit for the banks and the card companies,” he said.

“We would call on banks and non-banks to reduce rates, given that there is a record $46 billion currently outstanding on credit cards.”

He urged customers to shop around for a better deal and change to non-reward cards with interest rates of 11-12 per cent.

Westpac will reduce interest rates on Altitude, Altitude Business and 55-day credit cards by the full percentage point, effective next Thursday.

NAB will also lower interest rates on its reward cards (Qantas, Velocity and Mini) and commercial cards (Business Access, Business Card and Business Velocity) by one percentage point later this month.

A NAB spokeswoman said other credit cards were still being reviewed.

Though the big four banks have passed on the full cut to mortgage rates, they warn they may not do so in future.

The banks say high costs in wholesale markets will make it harder to fully pass on RBA cuts.

“We continue to look for ways to pass on savings to our customers, particularly during these economically turbulent times,” NAB retail banking general manager Lisa Gray said yesterday.

“It is important to acknowledge, however, these latest rate cuts have come at a time when our funding costs are at very high levels and we may not be in a position to pass on full rate cuts in the future.”

The new rules take effect in July of, are you ready for this, 2010! Here are highlights from the new federal rules on credit card firms.

• You must be allowed at least 21 days from the time your statement is mailed to make your payment before the date due.
• Payments over the minimum amount due must be applied to the highest interest rate balance on the account first or pro rata among the different balances at varying interest rates.
• Card companies must disclose interest rates charged on the account at the time of the opening of the account and specific rules that apply to increasing the disclosed rate(s). Among them, an increase in interest rate may only be applied for a late payment if the payment is received more than 30 days after the due date.
• One rule prohibits two-cycle billing, the practice of calculating interest rates based on the balance of the previous billing cycle and the current billing cycle. In the long run, cards that use two-cycle billing cost more in interest charges than cards with single-cycle billing.
• The rules also prohibit security deposits and fees for subprime credit cards that would amount to more than 50 percent of the credit limit in one 12-month period.

Whenever the rules are tweaked, everyone needs to be ready for unexpected consequences. I expect that tight credit will get even tighter under the new rules as lenders will be even more sensitive to lost fee and interest income.

The average annual interest rates for two of the most popular credit card types fell last week.

Low Interest Credit Cards: Average APR fell to 11.25% from 11.29%

Cash Back Credit Cards: Average APR fell to 13.36% from 13.38%

American Express says its profit dropped 79 percent in the fourth quarter, as cardmembers cut back on their spending amid the harsh economy.

Net income dropped to $172 million, or 15 cents per share, from $831 million, or 71 cents per share, a year earlier.

On an adjusted basis, excluding discontinued operations, the company earned $238 million, or 21 cents per share. Quarterly revenue fell 11 percent to $6.51 billion.

Analysts polled by Thomson Reuters expected a profit of 22 cents per share on revenue of $7.22 billion.

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Average interest rates on several types of credit cards fell slightly this week.

Annual percentage rates on four out of nine categories of cards - instant approval, airline, cash back and reward cards - fell from the previous week. Five categories remained the same: balance transfer, low interest, bad credit, student and business, according to the weekly report issued Thursday.

Instant approval cards saw average rates slip to 11.29 percent from 11.63 percent, while airline cards dipped to 11.71 percent from 11.86 percent. Cash back rates declined to an average 12.71 percent from 12.91 percent, while rewards cards slid to 11.43 percent from 11.65 percent, on average.
The APR on cards for people with bad credit held steady at 12.15 percent while rates on student cards remained at 14.21 percent. Business cards held at an average 15.82 percent, and balance transfer remained at 10.21 percent.

American express trimmed certain APRs after the Federal Reserve lowered its key lending rate to near zero last month. AmEx acknowledged the latest APR changes were based on changes in prime rates.
The survey is conducted weekly using offer data from U.S. card issuers.

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