AAAAAAAAGGGGGHHHHHHH!!!!!

Because what does “steamrolled” really mean? How did you get into debt in the first place, Scoop? Did you fail to read the contract you were signing with those credit card lenders? Did you not see their right to increase your interest at will in that tiny print? Did you do the math regarding compound interest, or grasp that you were spending money you didn’t actually have? And do you then expect me to believe that if you’re handed sufficient cash to pay off your debt over time you will, in fact, set aside that money for your debt and not spend it elsewhere?

Pull the other one, Scoop – it’s got bells on.

So my car breaks down and I get a $300 bill – it goes on the card. I need new tires – $400 on the card. My dental plan requires me to pay up front and I get reimbursed for a part of the amount a few months later. That goes on the card, and I’ll apply the smaller check I’ll get later to towards paying my credit card bill. Prescription copays, even with good health insurance, can run to $40 for a single item. If I’m tight that week it goes on a card. A home appliance breaks down and needs to be replaced. It goes on the credit card. These things come up faster then my pay is able to over come them and the balance keeps creeping up. Soon it’s thousands of dollars. I pay as much as I can each month – never the minimum – but the balance keeps going up.

I’m not using my card for frivolous stuff. No vacations. No new iPods. I have no cell phone. I don’t use a credit card when eating out.

The simple fact is the cost of living even a fairly basic life has risen faster then salaries for many people and in order to maintain their existence, they turn to the credit card. It’s a dangerous slow motion plunge into financial difficulty, but we keep hoping the future will be better somehow.

BTW…I am a person who got completely steamrolled with credit card debt. It took months just to get it sorted out with the use of a 3rd party debt management company. Its gonna take me 4 rough years to pay my way out of this, thanks to absurd credit card regulations.

“In reality, the burgeoning debt load traces mostly to families spending beyond their means so that they can – wait for it – live in neighborhoods with better schools for their children.”

I’m having trouble finding a source for that. Please help me out..

I’m all for better schools in the public sector. That’s why I like vouchers so much. Bring some free market competition to the school districts and you’ll see improvement. Free markets tend to be an uplifting, rising tide that can be quantified.

Jeff

I heard recently that some credit card companies will actually lower the credit limit for people who do not keep a balance. They’re in a sense punishing people for being financially responsible.

For those who are insured, so often there’s some stupid thing that isn’t covered. Typical example: Not long ago my wife was forced to call an ambulance. We were billed for it ’cause they didn’t take our insurance (how does an ambulance company not take Blue Cross?).

No sooner do we finish paying off one medical expense — on a $20-per-month payment plan, usually — than another one pops up. That’s the kind of stuff other people put on their credit cards. Damn the consequences, they think. The emergency must be dealt with at the time.

In the same way, banks don’t really like people who use their credit cards as a cheap form of 30-day credit because they derive no benefit from them, but plenty of costs.

Yeah, I’ve read that credit card issuers call people who don’t incur a lingering balance “deadbeats.” Intended irony, I’m sure.

The problem is that your meme – a popular one in some conservative circles, it seems – suggests that the reason for all that debt is people just going hog wild and maxing out credit cards on video game systems and other unnecessary frivolities. In reality, the burgeoning debt load traces mostly to families spending beyond their means so that they can – wait for it – live in neighborhoods with better schools for their children.

And the failure to get those kids into better schools has predictable results for the next generation in that poverty/credit/death spiral….

There are two types of people in this world, those who pay interest, and those who collect interest and it’s up to the individual to decide in which group they belong.

Jeff

60% of Americans carry a balance, and it is not uncommon to hear stories about maxed out credit cards from those least able to finance that debt. The banks are fine with it so long as they keep seeing $43B in late fees, etc. every year, as they did in 2006. I can think of several people that i know who’s minimum monthly payment on credit cards equals a small mortgage payment.

It is not uncommon to receive multiple solicitations per day, and the first few weeks of a university semester have the campus a veritable swarm of salesmen hawking cards to people with little (or no) income. When i got my first card, i could not get my limit to rise by being responsible with the card and paying it off (as i had been taught to do), it wasn’t until i purposefully carried a balance for a couple of months that the issuer raised the limit.

Sure, people should be careful with their money, but advice like that goes against the grain of modern American culture where the point is to consume, consume and consume some more. And so it is that the least able to handle the situation are in the worst situation, of course, the Citi’s and Chases and BoA’s were only too happy to issue those cards and raise the limit when the last one had been reached.

Perhaps it is only an American phenomenon to have the person in front of you in a checkout line produce 5 or more cards before he finds one that will be accepted. So while the majority of American households have no credit card debt (according to one survey), we are likely facing a situation similar to the sub-prime issue where the minority (with the help of lenders) blow up the creaking, frothy situation for everyone else.

There are numerous types of credit cards, so my summary is going to be a simplification but, on average, you get 30-days credit on any of your credit-card purchases before the total becomes due and you become liable for interest.

Around the world, more than half of credit-card holders pay off their full credit balance on due date. In other words, they benefit from 30 days of free credit and pay no charges. Banks, on the other hand, do borrow the cash that their credit card holders spend. So the interest on the account holders who don’t pay off immediately is used to cover the total debt that the bank incurs.

Now I’m not saying that banks don’t make quite a bit of money out of credit cards, but it isn’t as much as you think.

Credit cards are a little like the opposite of health insurance. Insurance companies like young, healthy people to become members because they can use their premiums to cover the illnesses of their less-healthy members. Conversely, insurance companies don’t really like members who will be net recipients.

In the same way, banks don’t really like people who use their credit cards as a cheap form of 30-day credit because they derive no benefit from them, but plenty of costs.

Unfortunately, just as insurance companies don’t get enough people who are young and healthy to become members, banks don’t have enough people who spend wildly on credit.

In both cases the premiums go up accordingly.

If you don’t like high credit costs, don’t spend on credit, no matter what they promise you. If you, like me, enjoy the convenience of a credit card (less so now with the proliferation of debit cards), then simply arrange a standing debit order that deducts the full due amount on the due date. End of charges. And you get the satisfaction of costing your bank money.

One of the reasons i’m opposed to cutting stimulus checks to everyone is that the smart ones will use it to pay down credit card bills, which means that the checks are effectively another bank bailout.

Good point, Lex. Thanks for compliments, Lex and Elaine.

I’d take Washington and his slave ownership over any of our current “leaders”, who behave more like King George than any of the founding brothers.

If i understand the landscape correctly, credit cards are a huge profit engine for the big banks (how could they not be at 30% interest rates). But defaults are on the rise and the largest balances tend to be held by those least able to finance them. The contraction of the economy is going to change spending habits…except among those who have no other recourse, who will run the cards up to the limit and then have to walk away.

One of the reasons i’m opposed to cutting stimulus checks to everyone is that the smart ones will use it to pay down credit card bills, which means that the checks are effectively another bank bailout. That legislation on credit cards should have been implemented years ago, before there was a huge mess that the legislation is not going to fix.

A ship too late to save a drowning witch, and the beaten down American will still have to choose between paying a bloated credit card debt and doing something that would actually help the economy.

And this, Russ, was a particularly fine piece.