The Grip Of Credit Card Debt

How Interest Rates Spiral Out Of Control When Left Unpaid

(CBS)  William Love is getting a masters in business administration, along with an advanced degree in debt.

Love's credit card debt is nearly $40,000, he tells CBS News correspondent Trish Regan. His minimum payments alone total $600 a month.

"Living expenses, food, even some frivolous items, I put on my credit cards," Love says.

The interest rates range on his cards range from 12 to 22 percent. Even if he could pay it off in five years, he'd still pay over $20,000 just in interest.

Love admits, "The interest rates are putting a lot of pressure on me."

It was rising interest rates that put 82-year-old Ruth Watt on a debt treadmill. Shortly, after her husband died, she had a lot of household expenses, and before she knew it, she was drowning in $20,000 of credit card debt.

Asked if there were days when she felt overwhelmed, Watt says bluntly, "That was every day."

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Debt Trap Series Part One l Part Three

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As she struggled to make the payments, she incurred late fees, over-limit charges and triggered hikes in her interest rates. It's the classic debt trap for millions of cardholders, and the banks are living off their mistakes.

Last year, credit card companies collected $14 billion in penalty and other fees. That's nearly half the industry's $33 billion in profits.

"The penalty fees are avoidable, just pay on time, don't wait for the last minute," says Nessa Feddis of the American Bankers Association.

Late payments can trigger default rates as high as 30 percent. It's all spelled out in those offers you get in the mail: rates "may increase ... if we do not receive the minimum payment due ... or you exceed your credit line."

"The interest rates can double or triple even though there really hasn't been any more risk to the credit card company by that consumer," Ken McEldowney, executive director of Consumer Action, a consumer advocacy group.

Ruth Watt got help from the St. John's University Law School Elder Law Clinic, in Queens, N.Y. The clinic helped her secure a special mortgage, and negotiated with the card companies to reduce her outstanding balance.

William Love is looking for work, wondering how he'll ever pay off his cards.

Love concludes of his ordeal, "You're thinking, how is this even possible, let alone, how am I going to get out of it?"