A Looming Crisis Sure to Be Continued

DCup

Pistol Packin DCup

Recently a friend (ahem) found herself in some financially challenging times. Let me rephrase that, a friend got herself into some financially scary times.  Through a series of mistakes, bad choices, a rooking in the name of a refinance and pie-in-the-sky optimism about her future earnings, she took on more debt than her family could handle.  A lot of that debt is what the industry calls unsecured debt.  That means credit cards.

Upon realizing that the blood was rapidly draining from the patient that was her bank account and there was no cash transfusion coming this month, my friend let go of the notion that has carried her through so many times.  Things weren’t just going to come toghether.  Where in the past things always just turned out okay (as in blood flow staunched, but patient not cured), this time it didn’t appear that the patient was going to make it.

A Specialist was called in.  Dollar Symbols Warhol

While talking to The Specialist, my friend mentioned that she found it somewhat irritating to watch her favorite cable news program while exercising these days because most of the commercials are about financial matters, with many of them being credit card commercials. She found especially irritating the commercials that show a person writing a check to pay for a purchase to be a hindrance, a nuisance, a luddite jerk. The advertisement’s message?  Get a credit card or get out of the way, asshole.

“Every time I see a Capitol One commercial,” said The Specialist, “I want to throw something through my t.v.”

She went on to explain that in role as a credit mediator, she finds the whole Capitol One is on your side, Mrs. Consumer, to be a load of crap.

“They want as much of your money as they can get their hands on,” she continued.

When my friend went through the ridiculously high interest rates she was trying to deal with, The Specialist made noises of disgust.  “Nothing but thievery,” she moaned.

My friend decided that credit counseling was the way to go right now because she didn’t see any end in sight to the ever-increasing rise in her interest rates.  The Specialist asked if the family had had credit issues in the past.

The answer was, of course, yes.  “We’re recidivists,” my friend told The Specialist.  “Is it that obvious?”

The Specialist explained that the banks who’d issued my friends’ credit cards were known for preying on people who had gone through a bankruptcy or debt management in the past.

“Borrowers in your situation are vastly more profitable than are people who pay their cards in full each month.  The issuers want people who will rack up fees and interest. They count on that money,” she explained.

It was not news to my friend to learn that the credit card industry considers people who pay their cards off each month “deadbeats.”Credit Time Bomb

The people who keep the credit industry afloat are people just like my friend.

This time my friend’s family got trapped in the zero percent interest game. You know that one, right? You get the teaser rate in your mailbox just about the time you start eyeing that hideously high interest rate in that one card you’ve had for a couple of years.  The interest rate inched up on you.  You forgot a payment when you were traveling and got hit with a late fee which took you over you limit, triggering another fee.  Next thing you know, that credit card you accepted so that you could rent a hotel room (have you tried booking a room without a credit card?) is maxed out with an interest rate of 30% and you haven’t made a purchase on it in a few months.  It forever hovers near the balance limit because of finance charges.

Anyway, you take out the zero percent to do a balance transfer with the intention of closing the high interest rate card. But the high interest rate card never gets closed and slowly charges appear on it again. An emergency tank of gas here, an unexpected birthday gift for a classmate there.  Whoops, someone needs a couple of new tires on their car.  You’re short one month and why not put some groceries on that card instead of running the risk of bouncing a check.  You promise yourself you’ll pay that high interest rate card off this month.

Bwahahahahahahaha!

Except you didn’t foresee next months emergency spending needs because along with forgetting to close that high interest rate credit card, you fucking forgot to get your crystal ball fixed, too.  Or when you thought about it, you called the card’s customer service number only to learn that you were close to your limit again.

Now my friend was beating herself up about the whole thing, but The Specialist assured her that calling the counseling service was the first step to financial salvation.  It would be a slow and steady digging out, but it was doable.  To not do something now was the wrong route to take.

You’ve seen this kind of math, right? It’s the scary math of credit.  Take a look at how much people like my friend contribute to the economy…..

Credit PrisonI f you have a 30% APR credit card with a $160 per month minimum payment that you’re paying on a $4,000 balance, it will take you 176 months to be rid of your debt. In that time, you will pay $4,828.49 in interest.

There’s such a stigma attached to bad credit that my friend couldn’t get past the shame she was feeling.  It’s that shame that kept her from seeking help for her problem before she found herself a month behind on her mortgage (guess what kind of mortgage she has) and racking up a string of thirty-day late notations on her credit reports.

She blamed herself for the whole mess.

“When she used her credit cards, did she have every intention of paying for her purchases?”

“Of course,” came the quick reply.

So why the stigma?  Smart people aren’t supposed to get into these messes. Smart people, especially smart people who’ve been burned before should know better.

When my friend mentioned this to The Specialist, she responded, “When did go through the bankruptcy?”

“1998.”

“And it took you this long to get in this deep again?” The Specialist laughed.

Huh?

According to The Specialist, people find themselves back in credit trouble a lot sooner than nine years.

“The system is set up that way.  They want you to almost fail. The sweet spot is when you are on the verge of failing.  That’s when you’re the most profitable to them.  They want you just on the edge.”

Life on the edge is a pretty good description for it according to my friend. Calling for help was definitely the right thing to do. At least it’s better than other considered alternatives.

Sharp knives in the drawer. An oncoming semi on the interstate. A little something from the medicine cabinet. Whoops, the car left running in the closed garage…..

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~ by dcup on December 15, 2007.

20 Responses to “A Looming Crisis Sure to Be Continued”

  1. DCup –

    I’m sorry to hear your friend’s sorry tale of woe.

    It’s all repairable, but it is hard to do. Good luck to her.

    Regards,

    Tengrain

  2. Excellent post and perfect description of how one gets in the hole with these cards. You’ve described my tale as well, except we’re lucky enough to have been able to get out of it on our own. It’s all part of our wonderful capitalistic economy that is supposed to be so great. The “free market” and religion of consumerism.

    By the way, Capitol One (at least at the time) was actually the lowest interest rate of the bunch we had, and we put other card balances (with much higher interest rates) on it – and if you paid late the rate didn’t go up. That is one way we got out of our mess. (That and borrowing on our 401K to pay back some of them). We’ve managed to run up somewhat of a balance again but not like before. This is a good reminder to pay it off!

  3. More joys of deregulation.

  4. A very good cautionary tale. I’m well off and I now use credit cards only for travel and I haven’t travelled in 11 months! I learned this little tidbit in tax class in business school. Why does your credit card payment get sent to Delaware, Nevada or South Dakota of all place? Even Chase of Citibank cards? Because those three states have little or no USURY LAWS!!!!!!!!!!!!!!!

  5. I’ve been hearing different versions of this story a lot lately. While I may be broke, I have no debts. I refuse to have a credit card, just to avoid such a trap.

  6. I’m with pygalgia. Once we got our debts paid off a few years back, chopped up the cards and haven’t looked back. Do I have any money? Hell no, but hey, if I get run over by a bus, no one will have to worry about any debts. Of the monetary kind, anyway.

    Too bad we’re not corporations, then we could do whatever the fuck we want, consequences be damned.

  7. I’ve avoided credit cards like the plague that they are for my entire life.

    Oh, I did have an Amoco card once, and it didn’t turn out well….

  8. I was a Lance Corporal(at the time about a thousand a month pay) with seventy-five thousand in debt with nothing to show for it, I sought credit counseling and got that problem fixed. It took a while, but I got out of the hole.

  9. Good luck to your friend. After spending 10 years paying off my student loans (and paying back a hell of a lot more than the $75k I borrowed…another scam), I finally got rid of all debt a few years ago. Now I save. Not a lot, mind you, but enough to feel a bit less vulnerable. And the sad thing is, that makes me one of the few lucky ones. It’s sick how the corporations have set things up to make us indentured servants.

  10. DCup, thank you for sharing this tale about your (ahem) friend. Tall your friend there is absolutely no fucking shame in bringing this up because you’ve just described how credit card companies and mortgage lenders view the “American dream” — a life of perpetual debt. I, too, went through a similar situation, and the solution was to refinance CC debt into more manageable home equity debt. And, as for savings? Meh. What’s that?

    Honestly, I wish that everyone in this country that owes anyone a dime would go on a debt strike; that is an organized event where for three months, we simply refuse to pay our debts. I wonder what will happen next.

  11. D, I wish your friend well as well. I have a friend who has made many of these mistakes and has been off the credit card sauce with a little of Spartacus’s residual technique. Her credit will be shot ’til the there’re the teacher bucks, and then will be the students loans. I’m thinkin’ cash and we, I mean my friend, just discovered the prepaid credit card for online transactions. She just cannot function with credit cards and has had to go cold turkey. She could call herself a victim as a poor student with children, but that won’t pay the, uh, her bills.

  12. I almost made the same comment as Spartacus about the debt strike thing but was concerned about being too provocative (!? here!?). The other thing that’s occurred to me more than once is the reason we don’t see more people out protesting the current mess is that people are afraid and shamed by their debt. It’s hard to stay away from a job even briefly with the threat of losing one’s source of living.

  13. DCup, tell your friend that we’ve all been there at some point in our lives. About 12 years ago I did the consolidation thing and was able to pay everything off in about 4 years. I managed to stay debt free for another 4 or 5 years, and then a wonderful thing happened. I bought a house, just at the right time, and got a promotion a year later. My house tripled in value, which allowed me to remodel … and for the first time in my life I actually have a savings account.

    BAC

  14. I didn’t know we were friends!

    Hmmmm, let’s see…. I got into a mess when I was so effing broke, I had to charge things like doctor’s visits (like that state mandated checkup for Kindergartent that cost nearly $300). Oh, and while we were laid off, I charged groceries, too. What a dumbass.

  15. dcup

    i wish your friend well. the whole credit/finance/consumerism of this country is laughable, scary and predatory all at the same time’

    first remember when they revamped the bankruptcy laws a few years back — why? TO HELP THE CREDIT CARD COMPANIES. not to help the consumers — not to help people that were putting medical bills on credit cards because they had no where else to turn to pay for necessary medical care.

    it is a sin what we allow and what we allow the credit card companies to do to us — they make it look ALL so easy — and voila – you just simply pay it back — you know the BMW, the dinners at the fancy restaurant, the complete set of new dishes etc. NOT. like you said they want you to miss payments, pay a small amount etc. they want to steal from you – period.

    i always pay my card in full each month — i look at it like a debit card, not a credit card. fortunately i have not fallen down the debt spiral — but i know it could happen in a flash and i (try) to stay vigilant. I have a 30 year fixed mortgage (there was no way i was going to take an adjustable — i did that once before and watched it spiral out of control). but i know all of this is not easy and very tenuous

    thanks for a such a terrific post and warning and i truly wish you friend well

  16. why are the banks allowed to get away with this? why isn’t the government on our side in these matters? how come the Bush administration will do all kinds of shit to bail out Wallstreet and banks but do little to nothing for the regular people? okay, I know the answers to all these questions but I can’t help but ask anyway.
    living life on the edge and any moment the world is going to plunge into the hell they are making!

  17. My brother got into the same situation and found himself in debt with credit cards of $70,000. He went to a financial service which got some of the debt relieved and then he had to hand over a large portion of his paycheck every week for about 5 years until it was all paid off. In the meantime, he wasn’t able to get any credit (although the credit card companies kept sending him applications and telling him he was pre-approved!). During that time he barely had enough to live on and pay his medical expenses that he had because he was fighting cancer. He ended up moving back in with my mom until he could dig out.

    I just did a post a couple of weeks ago about the unseemly practices of credit card companies. It made me so angry just typing the darned post! It also put me into a panic because we always use our credit card for Christmas presents and then pay it off right after Christmas. Usually that isn’t a problem, but I decided that this is the last year we will do that. I’m setting up a special account to add money all year round and I will be one of those horrible people holding up the lines and writing a check for now on.

  18. My intent is to get rid of the ccs this year, and I frankly no longer give a flying fsck whether or not I can rent a hotel room. Enough is enough.

  19. Credit Card companies really like me; I know because they won’t give me a card and I am constantly trying to get one.

    Too bad.

    I have never paid a debt that was printed anyway, but I got credit at every corner store from here(N.Y.) to California.

    God forbid we return to the merry old days when we bought things with money instead of a leveraged future.

    Does that make sense?

  20. i can certainly relate to your friend’s plight, d-cup. you’re late once and they jack up your interest rate from an already-ungodly rate of 23% to 30+% !!! i try to avoid using the word ‘evil’ but i will say that the credit card companies ARE evil. as you noted, they prey on the more vulnerable people who are struggling to make ends meet or who have had trouble in the past. they also prey on young people. i noticed a year or so ago at a university here in ny where i was completing my graduate degree. the credit card companies were all over campus pulling in the young undergrads with offers of low-interest (soon to become high-interest) credit cards. the worst part was that they were paying the students themselves to sign their fellow students up. as if kids don’t have enough debt to deal with when the graduate from college, never mind massive credit card debt. this really, REALLY should be stopped.

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