Credit Cards - Engines in a Crisis of Credit

I remember speaking to a financial counselor friend of mine who said she actually tells her clients that credit cards are "evil". When you consider the nefarious ways that credit card companies (banks) find ways to take your money and keep you in debt, it's difficult to understand why you would disagree with her.

Before we get into their arcane methods of lending, you should read an article by David Brooks, conservative op-ed writer for the NY Times. In a recent article, he illustrates our current debt/credit crisis in the most lucid and direct terms. He states, "The social norms and institutions that encouraged frugality and spending what you earn have been undermined. The institutions that encourage debt and living for the moment have been strengthened. The country's moral guardians are forever looking for decadence out of Hollywood and reality TV. But the most rampant decadence today is financial decadence, the trampling of decent norms about how to use and harness money."

There is an assault on your purchasing power. Corporate suppliers of goods and services ( gas, heating oil, electricity, food) are out to maximize their "market share" of your dollar. Credit card companies are the first line of this assault. When the Bush administration signed the bankruptcy legislation of 2005, it restructured and downgraded bankruptcy protection for the middle class into a windfall for credit card companies and banks.

Consumers often use credit cards out of desperation. Low salaries and job loss due to layoffs(downsizing) coupled with high costs of gasoline, heating oil , food, electricity, health care and health insurance have increased consumer debt to record increases just in the past 3 years.

CC companies are in business to ensnare and keep the consumer in debt and there is not enough room in this article to point out all of the many arcane details. Instead, we'll offer some basics.

The most important issue and the crux of the whole crisis, don't use a credit card for a purchase if at all you can go without the item or if you can pay in cash now or later. In other words, don't use them unless you absolutely have to.

CC bills come to your mail with less than 3 weeks to mail back a payment. If you miss that date you are charged $29-39 in late fees which generate an approximate 250-300% return for the cc company and billions in income for the cc companies. There is no postmark on the envelopes so you have no idea when it leaves their office. In the short time you have to mail payment you have to take into consideration US post office time for delivery. Most middle class workers are paid every 2 weeks. Most bills are paid once a month. CC bills fall somewhere in between every month. This works out perfectly for the generation of late fees.

CC rates are usurious by any legal definition of usury in any state in this country; 6% to 16% in most states yet in 1980 federal legislation was passed that allowed cc companies to ignore state usury laws. Why? Now rates are 28-36%. Loan sharks were jailed for similar rates back in the day.

If you have to use them do so wisely. Otherwise, you could end up like so many consumers, awash in ever rising credit card debt. Is it any wonder that the Fed in 2000 reported a 0% consumer savings rate; the lowest since the Great Depression.