January 2006 – I’m going to tell you some things that you should already know. You might already know these things somewhere in the back of your mind.
You’ve heard stories about credit card debt and what it’s doing to people. I can tell you from a rare perspective: I worked as an account manager for a major credit card company, and each day 100 calls – tales of misery – paraded by through my telephone headset.
I quit my job because I could no longer represent this industry and keep my self-respect.
Knowing is not enough. If knowledge was a sure predictor of action, nobody would smoke or be overweight, right? You need to act on that knowledge.
I have to persuade you. Don’t need persuasion? Then here’s the punch-line of this whole story:
Kill Your Credit Cards – Now
Get up, find your wallet, and grab some scissors. Write down the customer service numbers and the account numbers (don’t lose that paper!). Now cut through the numbers lengthwise. Now cut several times across the magnetic strip. Toss the pieces into separate trash cans, like the remains of criminals who were drawn and quartered in the old days – buried in separate heaps.
Now rejoice! You’ve secured your future, increased your spending ability, and struck a blow against evil! Later you can call the credit card company to say that you are closing your account to new purchases.
Need more? Okay, read on. I will offer you more reasons why you should act, counter your objections (which is what I was trained to do in order to get people more in debt), offer you alternatives, and hopefully (for your sake) close the deal.
How Would You Like to Have More Money?
The Basics
Suppose you finally decide to upgrade that aging computer. Because you are into “low-end living”, rather than buying the new, top-of-the-line PowerBook, you go to Apple’s Special Deals page and choose the $899 refurbished iBook. It’s twice as fast as the computer you have and costs half of what you paid for your old one. Great! You click to order, entering your credit card number. With tax and free shipping, let’s say that it’s $971 altogether.
Now, go take $650 cash, go to the bathroom, and flush it down the toilet.
What? That’s right, if you pay your minimum credit card payment each month, you will pay about $1,600 for that iBook. With that extra money, you could have gotten Apple’s faster, smaller, lighter PowerBook.
By the way, it will take you about seven years to pay it off if you only make the minimum payment.
What’s that you say? You always pay more than the minimum due?
Well, okay then: If you pay twice your minimum each month, it will only take you two-and-a-half years (already time for an upgrade), so you only have to flush $300 dollars down the toilet instead of getting some upgrades on your new computer.
If you carry that debt, you are flushing money down the toilet.
Don’t buy it unless you have the money to pay for it right now.
Don’t have the money but it now? Too bad – save for it.
Credit is saving backwards – and it steals your money and lines the pockets of Citi, Chase, Bank of America, and the rest.
Kind of like Robin Hood, only backwards.
You may counter that the economy depends on consumer spending, and credit cards help people do that. But what if the consumers used the money that now goes to pay credit card interest to buy actual goods and services? It seems like that would be better for the economy and the consumer.
What do you think?
The Hidden Tricks
Suppose you understand the basics of finance, as above. Great! You’re way ahead of about half the people who called in every day.
You see, back in the day a bank wouldn’t loan money to a middle-class person, let alone anyone below middle-class. If they did, your finances and your history would be carefully scrutinized.
Today at many websites you visit and many stores you go to, you will be offered a credit card. This is not to mention the mass mailings that you no doubt get in your mail box everyday. I was shocked to see credit card companies with tables outside of college bookstores. I’ve heard some companies even go to high schools.
You basically just need to be breathing to get a credit card today. Put a mirror or a piece of glass close to your face. Is steam forming? Congrats! You are one of the special people! You are qualified to give us money for no reason at all! Sign or click here!
Isn’t that crazy? Shouldn’t banks avoid risking money loaned to people to who may not be able to pay back the loan?
How wrong you are! They make the most money from people who don’t get it. It’s all in the Terms and Conditions that you read before you signed or clicked.
What do you mean you didn’t read your Terms and Conditions? It’s the thing with the tiny print in a gray typeface. Well, what are you waiting for?! Go get a lawyer, a CPA, and a magnifying glass and get to work!
This is your financial future that you’re legally signing away!
Okay, I can’t really blame you. But my former company does. When I made my concerns known to my manager or many of my coworkers – that the people I’m taking calls from are barely literate, angry, and think they are getting screwed – the answer is always some variation of, “We gave them all the information they needed to make an informed choice.”
I’m all for personal responsibly myself, but what’s with the tiny gray print in legalese?
They have you by the shorts, that’s what’s up with that, and they don’t want you to know it until it’s too late.
Don’t you think that my former employer, who’s credit card division made a four billion dollar profit last year, could afford to send you large, clear type and hire a writer to clarify and simplify things a bit?
Here’s what you don’t see:
- You probably think that if you send a check right now for the balance on your credit card, you will be done, finished. Not likely. Next month you will get a bill for residual interest – that’s for the time between when the statement was printed and the moment your payment hits the account. Surprise! You thought you were paid in full. Ha, ha, we get a few more bucks from a few million customers. Niener, neiner, you’re a wiener!
Most credit cards are going towards “average daily balance” calculations for interest. A few bucks times millions of customers – that’s a chunk of change.
But you always pay your balance in full each month, so you never pay finance charges, right? Sure, but did you return something and get a refund to your card? Did you pay the balance minus the credit? Surprise again, you have a revolving balance because ‘credits’ aren’t the same thing as ‘payments,’ so you have a revolving balance that earns interest every day.
The bill got lost in the mail, so you forgot to pay?
Wham! $39 late fee, even if you only owe $51. You’ve just nearly doubled the price of whatever it is you bought.
You call and they adjusted the late fee just this once as a courtesy? Great! But that adjustment is not the same as a payment, so even if you pay your full balance, you’ll get billed for interest next month.
Oops, another late fee a few months later? You mailed it in plenty of time? The payment website was down? I’m sorry, but not only can we not adjust it, but you are now in default, and we’re jacking your interest up to 30+%.
By the way, that goes on your credit reports, so all your other creditors might decide to put you default also.
Sorry.
How can they do that? How can you agree to one price for a service and then they triple it after you already bought it?
Because you approved your Terms and Agreement when you signed or clicked, that’s how.
Do you think it’s a happy coincidence that credit card companies earn 10% of their revenue from penalty fees? Are there really that many irresponsible people?
Or is their only mistake having legs while walking in a minefield?
Have I Got a Deal for You!
You will no doubt be solicited for add-on programs for your credit account. I know, because I was required to pitch these programs and taught how not to take No for an answer.
That’s right, if you call just to change your address or get your current balance, you get a sales pitch. It’s required. If I didn’t offer on a certain percentage of calls, then I got “coached”.
Oh, I also got a pittance of a commission on sales, but I felt it was more important to care for my callers first. Sometimes I would “forget” to make offers and ignore the annoying screen pop.
So you earn points for using your card. Okay, but don’t you earn interest for saving for the things you want to buy? Your points will expire if you don’t use them, but your interest never expires. If you have the money, why use the card? Using the card is an invitation to the minefield mentioned above.
You get money off on your purchase if you sign up? If you shop around, you can probably find that much money off for the same or equivalent product.
Okay, I admit that I once signed up for a card (with an online merchant named after a big river) to buy a flat-screen TV and VCR/DVD combo player. But I swear I searched everywhere online and went to most of the big retailers in my town, looked at the open-box, slightly damaged, and otherwise discounted items, and couldn’t find a better deal. Mea culpa.
But I paid it off in full right away and no interest accrued.
Just be paranoid like me, and you might be all right, but I doubt it.
Debt Cancellation
How about debt cancellation programs? For a certain amount per month, they will cover your minimum payments in case you become unemployed, spend overnight in a hospital, become disabled, blah, blah, blah.
Maybe you are a little scared of your debt, and it sounds like a good idea. Besides, it’s less than a dollar for every $100 on your account. That’s nothing.
Well then, here’s a deal: It’s called “Paycheck Care™”. You send me about a third of your paycheck every month, and if anything happens and you don’t get paid, I’ll pay you!
How does that sound?
You see, these debt cancellation programs are just like that. Your minimum payment is 2-3% of your balance each month. This “insurance” adds another 1% or so. You add 50% to your monthly bill, and your debt – the source of the risk – goes down that much more slowly.
Just between you and me, God help you if you try to make a claim or if you want to cancel the program and stop the charges. One moment while I transfer your call! If you are interested in Paycheck Care, ask Low End Living’s publisher how to send your payments to me.
How about a program that protects you against fraud? You register all your credit cards with us, and if you lose your wallet, just call us and we will immediately report them missing for you so that you are protected for up to $50,000 in fraudulent charges.
It’s only a small annual fee which you must pay in advance. We’ll put it on your account. We won’t mention the fact that you can make the calls yourself for free, and that federal law protects you against fraud.
This is just a small sample of the various schemes they have to keep you in perpetual debt and as a perpetual source of revenue.
I Don’t Have a Problem
Maybe you don’t. Just because you have a glass of wine at dinner doesn’t mean you’re an alcoholic. But that glass of wine is supporting an industry that profits from others’ ignorance, weakness, and cravings.
If financial services companies were vineyards, then retail credit would be jug wine. Chateau Whatever’s beautiful estates and grounds are paid for by ruined miserable lives.
How’s that wine taste now, knowing what it represents? You don’t abuse your family, you don’t kill people on the freeway, but what you are buying is frequently involved with people who do. Same with retail credit.
Yeah, but…
So, you just keep your card for emergencies, right?
That card is an emergency waiting to happen. Many people would call me six months past due because they don’t use their card, so they just throw away the statement when it comes in the mail. But they somehow got signed-up for some club or service “by accident”.
Maybe they cashed what looked like a rebate check, or they didn’t uncheck something when they made an online purchase. Maybe they didn’t check a “no” box when they signed-up for the card. Maybe a phone solicitor called them with an offer, they said “no,” but the agent conveniently misunderstood them because they are under pain of unemployment if they don’t make sales.
Now the card holder is in a world of financial pain.
Credit Card or Debit Card?
You like to make online and phone purchases. Okay, but a debit card works just as well in most cases. You can probably also rent a car if there’s a sufficient balance and you need to.
If it’s a Visa or MasterCard check card, you get the same extended purchase protection as you do with a credit card. With the debit card, you are only buying things for which you already have the money. That’s the natural order of the universe.
One thing I will admit, though, is that you don’t automatically get the same fraud protection that you do with credit cards. It may be there, but it’s not mandated by law as it is with credit cards. Check it out.
Also, fraud on your debit card might clean-out your bank account instead of just maxing out your credit balance. I suggest you can use a “Crash Test Dummy Debit Card”. If your bank has free checking, open a separate account for online and phone orders. When you want to buy something, transfer the amount to that account and click away.
What to Do
Read the paragraph about cutting up your credit cards and do it.
Is that too much? Okay, for now, here are some things you must at least do until the final showdown:
- Call your company and ask to have the credit line lowered. They will automatically keep raising it unless you tell them to stop – they don’t care who your are or how much you make. Lower it to about 10% above your current debt. While you’re at it, ask them to take you off the list for marketing mail and calls, and ask for a confirmation letter if they have it. I didn’t know you could ask for these things until I became an insider.
- Take advantage of low interest balance transfer offers, but be careful! Only transfer to a card that has zero balance, then cut that card up. Not many people know that when you get a low-interest promotion of some kind, that it gets paid-off first, and your purchases or whatever else sits there sucking away at your financial teat and isn’t touched by your payments. You’ve just made your high-interest charges bulletproof. Don’t bother calling to say how unfair that is – it’s in your Terms and Conditions, remember?
- Are you in really bad? Okay, take a look at consumer credit counseling, but again, be careful. Some of them are just loan-sharks with a happy face. They promise to lower your monthly payments, but you will stay in debt until samsara ends. Get a payment schedule that shows your balances, payments, and cumulative interest over time. There are nonprofit outfits that are nice and can really help, and then there are more charlatans.
“I say we get back to the mothership and nuke ’em from orbit – it’s the only way to be sure.”
That line, spoken by Sigourney Weaver in the classic science fiction thriller Aliens, is appropriate here. The financial services [sic] industry has become a powerhouse of woe. They service you all right. They make huge windfall profits when the prime rate goes down, and they don’t lower their interest rates. They consolidate their power in mergers and acquisitions, lowering operations cost and leveraging markets. There is a huge amount of market collusion, meaning the guy across the street is going to offer you about the same deal.
And don’t expect your legislators to intervene on your behalf. The industry contributes more to political campaigns than any other – more than oil and drug companies.
A little known US Supreme Court decision in 1978 made it possible for national banks to export usurious interest rates to states that formerly put a cap on them, usually at the Biblically defined rate of usury: over 10%.
That’s like South Dakota legalizing crack cocaine and the US courts saying that they could send that to your neighborhood. “Sure, no problem.”
In over 25 years, no one has stood up to plug that hole, because there is money to be made from weakness, craving, and ignorance.
Making money is the highest good, right?
What we have now is a fascist nightmare that would do Hitler proud. I was an unwitting participant, and I have a moral obligation to tell you now the ugly truth.
You vote for it with every swipe.
You know what you have to do now.
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