Friday, July 29, 2005

Where Credit Is Due... 

...you're screwed.

My parents, perhaps because they were Depression babies, were leery of credit and, in fact, they didn't get their first credit cards, ever, until I was well out of college -- not because they couldn't, but because they didn't want to. In fact, the only reason they finally did break down and get plastic was because stores suddenly started requiring credit card numbers in order to accept checks. That practice has gone away. But, I don't think my parents ever had more than two or three credit cards between them, and never had any balance on them. Having grown up with a totally screwed economy, they knew the value of cash and carry.

They kind of passed that on to me and, other than the almost inevitable "sucked in starving post-college student" adventure in my 20s (long since paid off and gone), I'm not a big credit-card fan either. At the moment, I only have one card with an outstanding balance, but it's from a retail store, not a general credit card, and I only ran up the balance one time, as an emergency measure. (My TV blew up, and I was at the moment unemployed. Which tells you something else about the screwed state of credit in the US right now. I was unemployed and they gave me a damn credit card.) But -- every month, I've paid ten percent of the total balance, and am about at the point where they get one check and the (smallish) balance goes bye-bye.

I have many friends and acquaintances in a far different situation. I've seen people I know (usually in their 20s) use a credit card to buy a sandwich at Quiznos. I've seen people in grocery stores put a pack of cigarettes and some tampons on the AMEX. Not only is that ridiculous. It's dangerous. That $6 sandwich is going to turn into a five-star restaurant dinner for two by the time you pay it off, if you succumb to the lure of the mythical Minimum Monthly Payment.

Of course, as I noted elsewhere, those MMPs are about to double, thanks to the Federal Government urging the credit card companies -- in exactly the wrong way -- to help people pay off their debts faster.

And now, many of those companies are going to be upping their interest rates and late fees.

I guess they're not making enough money, boo-fucking-hoo.

In any other universe, Credit Card companies would be considered no better than loan sharks and would be run out of business for fradulent, usurious practices. Also considering the rather sloppy handling of their customers' personal info of late, it's just an insult that they think a $39 penalty when your check arrives a day late is justified. As for fradulent, the concept of MMP is just a lie. It was 2% of the outstanding balance, soon to rise to 4%. But let's look at the math. Taking the average credit card rate of about 13% and a mythical $1,000 balance, with a minimum monthly payment of $10, here's what happens if you pay the minimum:Repeat for twelve years, paying a total of 180% of the original balance. Incidentally, if there's no bottom limit on the MMP, you run into what's called an infinite regress -- the balance will approach, but never reach, zero. Which should tell you something about credit card company math in the first place.

Anyway, there's one simple way to defeat these thieving bastards at their own game, and that's not to play it. It may be tempting to just put it on plastic, pay tomorrow for today's expenses. But it's a losing proposition from the word go. The TV I bought on credit is worth far less than I've paid for it. But, about six months after that purchase, when I was working, I bought a second TV (same size as the first one) for cash, and it's still worth somewhat in the vicinity of what I paid for it.

But... I would love it if America would end its love affair with credit. If everyone could ween themselves and get into the cash and carry mode, the credit card companies would lose their fortunes and their power quickly. It would become a borrower's market, and suddenly they'd have to drop their interest rates and their usurious practices in order to lure customers. If we could just cut up the plastic and learn to not spend money we don't have, then the companies that promised no late fees and lower rates would be the companies that got the business.

That's the only way to control any cartel, really. Stop doing business with them until they're willing to do business on your terms, not theirs. It may be a pipe dream, but if enough people play along, it just might work.

At any rate, the only people who get screwed by the credit card companies are those who sign on the dotted and sell their souls. And that isn't necessary.

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