The big picture by J.T. Korkow: Credit card blues
September 25, 2015
A friend of mine came over the other day to pay a visit, and during our visit the topic turned to wages, cost of living, cost of doing business…and credit cards. He then began to divulge his story of how his wife had gone shopping at a clothing store and when making her purchase was told she could save 10 percent on her purchase if she would sign up for their credit card that charged 0 interest and put the purchase on it. She had purchased just a little over $100 in merchandise, and so her savings was $10. Sounded like a great deal to her, and she planned on paying it off at the first billing.
Six months later, the balance is still over $100, and he said it has just about created a divorce. You see, when his wife received the bill and went to pay it, she decided to just make the minimum payment, which was something like $15, as the money was a bit short anyway, with the kids going back to school.
So she sent the payment off in the mail. However, when the statement came the next month, it reflected a late payment fee of $35 was added to the balance, and the interest rate was raised to 27 percent, as the company claimed they had not received the payment by the due date, even though it was sent off 10 days before the due date! How could you prove otherwise? Because money was short again, the next month, she elected to make the minimum payment again, which was now $25, and the debt continued to increase with periodic late fees and high interest charges. Does this sound familiar to anyone?
Based on Federal Reserve statistics, the average credit card debt per household in the United States is $7,237 and steadily climbing. Credit card debt is considered to be the third largest debt of most households, with a total of $890.9 billion owed by the American people. There is a reason credit cards are solicited to the public so aggressively folks, it is a money making business for the entities that solicit them!
Without proper discipline in a wage-earning household, credit card debt can get out of control very quickly. Having managed a bank for a publicly traded company, I can attest to the fact that banks actually have consultants report to them on what gimmicks attract the consumer and what to put into the fine print to "hook" people to maximize profit from these things.
For instance, the report that I read suggested incorporating a 28-day payment cycle, so the payment due date default clauses would kick in, so as to maximize profit through late fees and higher interest charges. So the 'teaser' rates of interest and other bait and switch tactics suck you in, but better read the fine print! And by the way, the consultants already factor in a projected loss of funds due to non-payment, but state the profit margin far exceeds the any loss incurred.
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So as kids become of majority age and are heading off to college, they need to be aware they are the most sought after candidates for credit card solicitation, and how credit cards can destroy their credit rating. A poor credit rating will make them ineligible for purchasing a car or home when they get out of college, and take years to overcome. The best alternative I have found are debit cards or check cards. And if you need to borrow money for things, go to your bank and seek a personal loan and secure it with some hard collateral if you need to. The interest rate is cheaper, and the credit is straightforward.
"At the end of every seven years you shall grant a release of debts. And this the form of the release: Every creditor who has lent anything to his neighbor, shall release it; he shall not require it of his neighbor or his brother, because it is called the Lord's release." Deuteronomy 15:2-3