Few Americans can seem to do without at least one credit card, and the majority of U.S. consumers often have wallets full of plastic. Many obtain these cards with little knowledge of how they work or the way interest on purchases is calculated, and those least able to repay appear to be the ones getting into the deepest end of financial hot water.

The nonpartisan research center Demos contends that credit-card deregulation fall most heavily on those who are the least able to bear the burden: low-income families, African Americans, Latinos and single women.

"Credit-card companies often offer tempting incentives like low or zero percent APRs, frequent-flier miles or cash back on purchases," said Tamara Draut, co-author of the report and director of the Demos' Economic Opportunity Program. "Someone has to bear the cost of these promotions, and they are often the families already in financial dire straits."

Missing a payment by even an hour has the potential to send a cardholders' interest rate soaring not only on that card, but on other credit cards, too.

According to the Federal Trade Commission, the APR or annual percentage rate the credit card company will charge is a measure of the cost of credit, expressed as a yearly rate. It must be disclosed before you become obligated on the account and on your account statements.

The card issuer also must disclose the "periodic rate" -- the rate applied to your outstanding balance to figure the finance charge for each billing period. Some credit card plans allow the issuer to change your APR when interest rates or other economic indicators -- called indexes -- change. Because the rate change is linked to the index's performance, these plans are called "variable rate" programs.

Rate changes raise or lower the finance charge on your account, according to the FTC. If you're considering a variable rate card, the issuer must also provide various information that discloses to you that the rate may change; and how the rate is determined -- which index is used and what additional amount, the "margin," is added to determine your new rate.

Unfortunately, according to Demos, many cardholders purchase goods based on one set of conditions, such an APR of 16 percent, but end up repaying them back on another set, with the new interest rate being charged as high as 40 percent.

It is a standard credit-card industry practice to changing the conditions of the original card agreement at any time and for any reason, experts say.

Those changes are typically spelled out in bills to consumers in the advance of changes, but cardholders rarely look at additional material inserted in their bills, and are often too much in debt to pay off the cards and cancel them in response to those changes.

Deregulation of the industry began in the late 1970s, when the Supreme Court decided that banks could charge the highest interest rate allowed in the state in which the bank was incorporated, not where the customers lived.

As a result, regional and national banks moved their operations to states where there were no usury ceilings on credit card interest rates, such as Delaware. In the mid-1990s, another Supreme Court ruling further enabled deregulation by defining fees as "interest," and thus subjected them to the courts interest-rate decision in the 1970s.

A recent study by Demos found the following that one-third of cardholders are paying interest rates in excess of 20 percent. In 1990, the lowest APR reported was 11.88 percent, and the highest 22 percent. By 2004, the lowest was 0 percent while the highest jumped to 41 percent. About a third of credit card accounts with balances pay little or no interest each month, which essentially amounts to a free or very low-cost loan.

More than a third (36 percent) of accounts pay the regular interest rate. The final third of accounts pay interest rates that range from more than 20 percent to as high as 41 percent. Cardholders with balances and household incomes below $25,000 are more than twice as likely as households earning $50,000, and over five times more likely than households earning $100,000, to pay interest rates higher than 20 percent.

The FTC also warns that as the nation’s consumer debt levels reach all-time highs, the number of scam artists promising to help you out of debt is rising with it. While many of these ads promise help, most are just offering to help you with costly bankruptcy procedures, which will also damage credit. The FTC recommends people in financial distress consider the following options:

Talk with your creditors. They may be willing to work out a modified payment plan. Contact a credit counseling service. These organizations work with you and your creditors to develop debt repayment plans.

Such plans require you to deposit money each month with the counseling service. The service then pays your creditors. Some nonprofit organizations charge little or nothing for their services. Carefully consider a second mortgage or home equity line of credit. While these loans may allow you to consolidate your debt, they also require your home as collateral.

Published: August 30, 2007

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Al Heavens writes about real estate and home repair and improvement. He is the author of What No One Ever Tells You About Renovating Your Home: Real-Life Advice For Hassle-free, Cost-Effective Remodeling.