High credit card costs make consumers rethink finances

In the wake of the Great Recession, many American borrowers are seeing their consumer credit reports showcase healthy numbers once again. However, it's not simply down to improved business sentiment or better financial regulations. In large part, the rebounding economy is a result of more frugal and vigilant monetary practices among consumers.

A recent article in American Thinker highlighted the fact that Americans are showing more financial restraint as they apply lessons learned during the economic downturn. In particular, the source noted that credit card delinquency rates are down, as are over-limit fees.

However, the trends may not be in the favor of credit card companies, and for good reason. The source reported that regulations passed in recent years have increased the overall rates placed on many consumer credit accounts. Because it is no longer legally viable to charge higher rates for riskier borrowers, credit card firms are charging higher premiums across the board. In fact, when compared against one-year treasury notes, credit card rates are at the highest level they have been in decades.

The development has resulted in many borrowers with good credit scores being forced to pay premiums similar to those offered to subprime purchasers. For this reason, many Americans are starting to consider switching to other forms of borrowing as credit cards are simply becoming too expensive.

Alternative financial options
Prepaid card payment options are increasingly becoming more popular among U.S. consumers. Data from The Nilson Report showed that prepaid card use has grown at a higher rate than credit and debit card activity in recent years. From 2007 to 2012, prepaid transactions spiked by 211 percent, compared to 61 percent for debit cards and 17 percent for credit cards.

The prepaid market has made significant strides in the last decade. In 2002, $2 billion worth of prepaid transactions were made in America. In 2012, that number topped $152 billion, the source noted.

With high interest rates and alterative payment solutions becoming more popular, financial institutions may want to consider investing in prepaid payment tools. Consumers are showing that they are becoming more open to less traditional products as they look for novel ways to keep their finances organized in order to avoid a return to economic misfortune. Potentially, investing in prepaid offerings may help financial enterprises stand out from the competition, winning over consumers and increasing business.