Saturday, August 12, 2006

Credit Card Debt

Let's go back to 1971 when I was young. Just out of college and I did not have a credit card. I also had no credit experience as far a Master Card and Visa was concerned so they wouldn't issue me a card. I had always paid cash. The only way to build your credit was to go out and buy something on the installment plan at some local store charging 18-36% interest. So I financed a microwave oven for $400--easy monthly payments of $60 per month. After 8 months of paying, I qualified for a Master Card. The card arrived two weeks after I was laid off from my job. Admittedly I used it as a tool and it got me through some rough times where I need 30 or 60 days until my unemployment check came. At that point in my life I took a risk and purchased a lawn mower with the card and started a successful lawn care business.

Fast forward to today, I still use a credit card. Its an easy way to purchase on line. Its also very nice if your doubtful of the stores return policy. If I Visa and item and they won't refund my money, it costs them $40 to dispute my claim. Notice one thing, its used as a tool not as an extension of my future earning power. I pay it off every month.

From here, it is only a short step to start using it as a creature comfort I-need-it-now card. There are many things at work here with this mind set. First the person has been trained to look at the paycheck and how much they can afford in monthly payments. If the house payment is $1500 and they have $600 left over, then the $300 dollar car payment fits in, $200 insurance and $75 utilities. No sweat on the $2,000 Visa card payment--send them $25. Second, they are living from month to month. Anybody doing that needs to sit down and figure a way out of that, you are at a dead end. Third if you are married, its a very uncomfortable life to live, arguing over what to purchase with what little money you have left, with your spouse.

I get very irritated by a TV ad on the radio every day about some worker meant to sound uneducated, telling how this company was able to sell him a $2000 flat screen and not charge him the $500 to mount it to his wall. This is a well rehearsed ad not something spontaneous--its two people reading a script--great acting. Its meant to get you down there and sign on the bottom line. If you are breathing, they want to sell you a flat screen TV. They don't give a damn about what it will do to your family and finances.

Of course it can be played the other way, my stepmother who is about 75 has about 6 credit cards that she got while my dad was still alive. I imagine that she is into the banks for over $100,000. She use to do a phone cash advance transfer from one account to another to make a minimum payment without having to pay a late penalty (its an extra $27 to do a phone transfer). I wish her well.

So where are we? We are between Visa and Master card, at the corner of Walk and Don't Walk. I don't see either credit card company surviving this mess. Chase Manhattan Bank is the bank that my step mother loves so we know who's first in line.

Go ahead buy the flat panel wide screen, YOU DESERVE IT!--miss one payment and PAY FOR THE REST OF YOUR LIFE. Sign on the dotted line. Its painless (I'm lying).

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