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    Discuss credit card debt: high interest rates, delinquencies

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    I always find it amazing at how much money the credit card companies are able to make on the interest and fees. I look at the settlements that the credit card companies are able to do receiving only 40% of the balance. It shows how much they are able to make that they can afford to settle for a small percentage that is probably around the original purchase price on many of the items. Explain

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    Solution Preview

    First, it is important to examine the caliber of the debt. It is unsecured which makes it high risk. Then the borrowers are not properly vetted.

    Compare that kind of debt to getting a house loan, for example, where you have to prove your income and debts. In a normal home loan application, an appraisal of the property is required to verify value. Income and debts of the borrower will be confirmed, and ratio analysis will be applied to the personal ...

    Solution Summary

    The solution compares credit card debt to other forms of consumer debt in assessing the interest rates and delinquencies. A simple business model is presented which easily justifies a 15% interest rate on credit card debt.