Skip to comments.Cardholders Caught In Credit 'Trap': Report
Posted on 08/11/2007 6:39:42 AM PDT by Hydroshock
WASHINGTON A "dangerous cycle of debt" is trapping too many credit-card holders, making it increasingly difficult to protect their financial security, according to a report.
About one-third of cardholders pay interest rates in excess of 20 percent, according to a report from New York-based think tank Demos. Also, borrowers with one slip-up can incur a "cascade" of penalties and end up in a "trap" of high-cost debt, the report said.
"The excuse of risk-based pricing is used to justify everything. These prices go far beyond pricing for risk. Some of these interest rates and payment fees seem to not accurately reflect the risk," said Tamara Draut, a co-author of the report.
Draut criticized practices such as card issuers retroactively applying rate increases. The authors also noted that companies can change terms at will, and that there are no legal bounds to the amount of fees and interest that borrowers can be charged.
"As a result, cardholders often borrow money under one set of conditions and end up paying it back under a different set of conditions," according to the authors.
(Excerpt) Read more at foxnews.com ...
I to fell into the trap, but am well on my way of clawing myself out.
If you can borrow money at 5% and earn 10% on it on Wall Street, you aren't a slave. You're just smart.
Me too. I tried my best to explain to the then wife YOU DON’T BUY MONEY.
Most people are in debt after a divorce. I paid off my house in two years afterwards with no other debts.
I have a house in my name, two elderly vehicles that run to my satisfaction, a stationwagon and van. I was thinking of buying a kayak for my river trips but since the service provides the transportation, I figured I would just go ahead and pay the little extra money to rent the kayak. They can handle transporting to the river and it’s possible damage. I have my son’s old mountain bike. He wanted to replace it but I don’t see the need. It’s not like bikes don’t get scarred up anyway if they’re used to their full extent.
The ex-wife? Broke and living in an apartment on a nurse’s salary.
Until the market goes down, there are no sure winners or losers.
If you consider your credit card debt an investment how are you going to cash in?
If you “have to” use plastic, I suggest a debit card. I use them for travel and the occasional convenience of ordering something over the Internet or phone. Other than that, I use cash.
You seem to know a lot of people who support your narrow view of the world.
Donald Trump declared bankruptcy and he’s doing alright. Many corporations declare bankruptcy, and afterwards do very well. It’s not an ideal solution, but it works for many people.
Your income is your greatest wealth-building tool, not debt.
The debit card stays in the vault. It’s not taken out except for buying things on the internet that are impossible to buy locally. Most purchases like that are done through the mail with a money order.
It is a view that has consistently proven to help build net worth and provide a measure of financial security for your family and your self. My grandmother outlived my Grandfather. In the last 2 years of her life she was in poor shape and had to have 24 hour live in help. She had no debt, and had enough saving and investments to pay for her care without touching the principle of the investments. Her final years were as comfortable as possible, with dignity, and in her home with friends and family close by, and not in a nursing home.
If you take the thoughtful step backward to get on solid ground(get and stay on a budget) instead of looking at the false allure of the quick fix that bankruptcy seems to offer, you will win (get out of debt) more quickly and easily.
I am up to my eyeballs in credit card debt. It takes everything I can do to make the payments and have enough left over to feel like I’m getting ahead. But at least I have the knowledge that it’s my effort that will make it go or not go.
Some days I wake up and wish I had never gotten into the rat race. But most days I wake up and thank God, literally, that I live in America and that I can risk everything I own in return for the opportunity to do what I love to do and maybe even make a living doing it.
I know this plan will get a ton of heat from those who believe in pay as you go. But that’s not my nature.
I won’t bore everyone with the stories of how missing a single payment to one company can cause the others to lower my limit and raise my interest rates. Suffice it to say I might well live to regret my risk-taking nature, but for now I’m reasonably happy with my life.
PS I’m over 65 and I a ‘retired’. You can get a feel for my work at my website: http://www.jwparker.com No nasty comments about all the kid's birthday parties, etc. If it pays I'll shoot it.
I use my debit card and it has all the same protections as a credit card without the intrest.
I've borrowed money to buy a used backhoe, kept it for about 2 years to do some work on the property, and sold it for a more than I paid after cleaning it up and doing some mechanical repairs. The interest on the money was considerably less than I could have rented the tractor for, or paid someone else to do the work.
Good luck with your venture.
I really don’t think some of these people get it. They try to explain they can borrow at 5% and invest at 10%. They don’t seem to realize they can eventually save investment capitol and earn that total 10%.
Instead of living in an apartment with no equity, I’m living in a house with no mortgage and the lawn needs cutting. I might as well do it before it gets too hot.
I forgot to mention. I still pay a “Mortgage”. Since I paid off the house, the exact amount I used to send to the mortgage company now goes straight into my savings account. I pay myself that “mortgage” every month.
I get it but I will never borrow to invest. I invest my income.Why have the risk?
Get that lawn mowed its just gonna get hotter!!
I have taught my son this simple rule many times but he still pays 22% interest and thinks he is a winner. Some kids never learn until they are bankrupt, but old Dad won't bail him out and neither should the FEDs bail out moronic card holders at taxpayer expense.
During the divorce, I knew the ex would want all the pictures of our marriage. Since the furnace was broken and it was winter, I spent a couple of months in a single room and scanning 4,000 pictures. She eventually demanded all the hard photos and albums. I have all the pictures on this computer backed with another hard drive.
The furnace was eventually fixed with both of us sharing the expense so it was cheaper that way for me. I also have about sixty really great photos that are professional grade. If I have to make any extra cash, I can always get those photos copywrited, printed and sold at art festivals.
If divorce is on the horizon or an inheritance with squabbling siblings, convert your pictures to pixels.
I’m beating the system. I buy everything with a credit card that offers reward points. I never carry a balance, so I never pay interest. I get lots of “free stuff” with my reward points that I would otherwise have to pay for. On top of that, I make large purchases with zero percent for one year cards, and leave my money in stocks or CD’s to earn interest, and pay off the card by the end of the year, virtually using the bank’s money for a year, interest free.
You can heavy lift with your back or you can use a lever.... Archimedes figured this out 23 hundred years ago......
Why are you still using credit card debt with sky high rates? At the very least, you should go to the bank and apply for a debt consolidation loan which will give you a much lower interest rate. How about a home equity loan? That's a much lower rate too. Since you are 65, how about a reverse mortgage if you own your home outright? You've probably got many options to get rid of those sky high usurious credit card interest rates.
Since we’re on the subject...you might get a kick out of this!
I don’t think you can rent a car or reserve a hotel/motel room without a credit card now. Everyone should have one to use in an emergency.
That’s too good. Too bad it didn’t get posted at the beginning of this thread.
True, Hydroshock, but if you have a longterm perspective and invest conservatively, it is not difficult to make more than 4.75% (our current mortgage) in the market.
If I had wanted a "sure thing" when we did the re-fi I could have put the cash available to pay off the note entirely into a longterm CD at around 6% or so. Putting the money into that instead of paying off the house, and taking a 4.75% mortgage on the balance owed on the house would leave us ahead by enough to buy a nice car in 10 years.
Don't get me wrong. I am almost as conservative as you about debt. Just not quite.
Gimme a break..just woke up...drinking coffee.
I rented a motel room and a car just two weeks ago with my debit card.
I have an emergency fund for “emergencies” and I get the interest in a money market account.
BUMP for later reference
Lending is different than borrowing
Personal finance is 80% behavior. You do not build wealth with credit cards. Use common sense. When you play with a multi-billion dollar industry and you think you’re going to win at their game, you are naive. You cannot beat the credit card companies.
They keep writing this stuff as though the people that overextend their debt are the victims of some outside force. They are merely the victims of their own actions.
Simple solution: stop spending, and start paying down your debt.
Drug dealers screwed over the rental car business by renting them to transport drugs.
My debit card is a Mastercard with an actual Mastercard number, exp date, and a security code on the back as are most debit cards now except it draws right from the bank usually right at the time of purchase some purchases take 3 days or so to clear and I have the same protections that a cc will offer.
That's all fine and dandy wisdom. But, there is a legitimate need and use of credit. What's happening now is nothing short of legalized loan sharking. But, it's OK because the loan sharks have nice upstanding names and make contributions to political campaigns.
I know a hardworking fellow who confided in me that he got caught up in this kind of credit scam. Those smiling faces turned to vampires once he was over the barrel.
Clearly, the American public should be protected from such shenanigans. Sure, you can say "Buyer beware, etc". But, I'd like to know how many of you who have a credit card have actually read the fine print of the agreement you have as a borrower, and read the fine print of every document sent to you by your credit card company that might have hidden in it that the rules have changed.
If congress wants to do something for the American people, it should set a maximum interest rated tied to the prime rate.
But, instead loan sharking is legalized, as long as its done by the right shark.
I think it all boils down to who is right? All the broke people who use and advocate the use of credit cards or credit as a tool; or God when he inspired Solomon to write those words and obviously has a disdain for debt?
Did I say my persoal finance behavior had changed...no.
I buy what I would normally buy, I just put it on a rewards card. Gas, groceries, normal things we buy. I have money in the bank to cover my purchases, so I pay them off at the end of the month...no interest. But because of the rewards points, I don’t have to pay for Christmas presents (I use the points for that)....don’t pay for vacations (use the points for airline tickets, hotels, etc.)
I haven’t spent anymore money using the credit cards, I’ve actually saved money...by getting reward points. If you can control your spending behavior...credit cards can work for you.
Plus as I said, since our credit score is upwards of 800, we get offers all the time for 12 - 18 month no interest CC purchases. We don’t use these for things we don’t have the money for, but buy big ticket items we need (refrigerator or computer comes to mind), keep our money in a place where it’s working for us, and essentially gain 12 months interest on that money for ourselves, at the CC company’s expense because we pay off the balance before the 12 month is up...we used the cc’s money for 12 month with no interest.
Do you have a mortgage? Almost everyone does. That is debt, but having a mortgage is a whole lot less enslaving than having a landlord who has a mortgage - believe me.
Want a college education? Have a spare $160,000 sitting around? Don't give me a lecture about the local community college and State whatever. Do you want a real credential from a real university that will be accepted by a real employer - you have to pay. I am not talking about elite private universities. Elite public universities are just as bad. University of Michigan, UVa and UC (any campus) are at the $40,000 per year level, and no I won't take an engineering degree from the local community college as equivalent in trade when I hire a manger for a large project.
Want a car so that you can get to work reliably and that will last 150,000 miles reliably with a reasonable warranty so that you know that any lemon problems will be taken care of. Have a spare $25,000 - $40,000 sitting around with nothing better to do?
Have job in a major metropolitan area but want to live cheaply? You can commute 2 hrs each way each day and live in an area with a bad school district. People do. That is not a rich life, however.
In a society where the price of everything is inflated by the debt ration the system is designed for, your choice of not debt is enviable if you can pull it off, but you are likely to live a comparatively unsatisfied life as a consequence.
I hate our debt ridden society more than anyone, but the blame is systemic and systematic. It goes to society as a whole, the politicians who created it, the voters who continue to vote for it and the federal reserve board that keeps figuring out new ways to breath life into it. But don't blame its victims who are just trying to get by from day to day. That is immoral.
I apologize if I come off as pious I did not mean to sound that way I just was led after many years of debt. To understand what God meant when he penned those words through Solomon.
Ah, but if you pay off your credit cards in full each month do you have debt...no...the credit card bill would go in the "accounts payable" column. It no more debt than when my exterminator sprays my yard, and since I'm not home at the time, I do owe him the money, but he sends me a bill and I pay it. I am not in debt to that exterminator just because I didn't pay it till the bill came due. Same with CC's...don't carry a balance, pay your bill in full on time...that's not debt.
I look at using the rewards points and free interest more as being a good steward of money...making money work for you...if you want a Biblical example, you could liken it to the parable of the talents, I wouldn't want to bury mine in the ground just to stay on the safe side.
“The average credit card holder does not.”
Anyone that borrows for anything but a home will wind up with nothing.
Out of the hundreds of employees, making good wages theree haven’t been more than 6 that had any assets to speak of because they boought what they wanted or needed on time payments.
What you miss in all of this is that the federal reserve sits on a banking system where 90 some percent of money in circulation is not cash, but debt instruments. You need to save your opporbrium for the folks who created this system, and not its victims who are both the buyers and sellers of goods in the marketplace.
One trip/fall and then what?
One major life event a lost job etc then what?
I will never put my family in that kind of risk again.
You can go on living with risk.
When you play with fire your gonna get burned.
I only know this from experience. And feel led to share it with others when it comes up.
Delayed pleasure is greater pleasure.
We as people think we need things now instead of saving for what we want and then purchasing it. So we borrow to buy. Doesn’t make sense to me. I will never do anything on credit again.
I don’t blame the government on my behavior nor should anyone else. Personal finance is 80% behavior.
“But, I’d like to know how many of you who have a credit card have actually read the fine print of the agreement you have as a borrower, and read the fine print of every document sent to you by your credit card company that might have hidden in it that the rules have changed.”
I’ve always read and understood every word ever given to me by sny company that i’ve ever been involved with.
Anyone that doesn’t desreves whatever befalls them.
Sometimes delayed action is opportunity lost. There is now pleasure in a delayed college education. It is bad enough the first time around, and the only saving grace is that you are young when you go through it.
Second, what you call "saving" is a fiction in an inflational world where after tax risk free rates of return are below the rate of inflation. Of course one can "invest" but as we are starting to learn, investment is not unrisky, depite 30 years of the illusion that it is so.