Credit Cards – The Good, the Bad and the Ugly
Gerald McNally, Esq
The good – Credit cards can be quite a cushion when you simply must replace those3 old tires; or when that fabulous one-time sale is about to expire. If you don’t treat them with the proper respect, however, they will cause havoc in your life. You see, they are meant to be used and paid off. Not sit in your wallet accumulating interest for the bank.
Many people mistake available credit for money, income that can be freely spent, with payments just enough to keep the interest current. If you look at your credit card statement now, you will see a disclosure, which shows you the time it will take to pay off your credit cards if you only make the minimum payment. It’s often as long as 40 years!
Let’s go back to that fabulous sale, the silk evening dress, or the brand new tires. Let’s say they retail for $1,200 and they’re on sale for $800. Wow! Buy them now. If you pay cash, what do these items cost? $800 plus Governor Brown’s sales tax, of course.
Credit can be a wonderful way of having the things you deserve, with the ability to pay for them out of future earnings. The European vacation; the ocean cruise, or the big chrome rims for your hot rod. And you know that as long as you work hard, there will always be the money for the minimum payments. And then, reward! The bank sees you make your payments on time and raises your\our credit limit. Now you can spend some more.
The bad – The waters get murkier now. What if you pay with your credit card? Your interest rate is a typical 18% per year and the payment is “only” $14.41 per month. That $800 bargain will take 10 years to pay off, and cost you an additional $970 in interest, for a total of $1,770. Not quite such a bargain any more is it.
Why would the banks ever explain this to you? They never did, until Congress forced them to last year. They were too busy raking in vast profits from their credit card money machines. And when you’re young or out of work, the expenses usually exceed your income, so it’s not $800, but $8,000, or even $80,000. Emergencies happen and you must spend the money now or suffer the consequences. How do you get to work in Los Angeles without a working car? Now those payments are $1,441 per month.
By the way, the average American household has about $9,000 of credit card debt. And your government wants you to spend on credit, in the belief that granting credit will stimulate the economy and create jobs. Our recession remains an emergency because the banks lent so much money on bad home loans, staying afloat takes all their capital and they have little or none to lend.
The ugly – With many people being “downsized,” and unable to find any work, even minimum wage, it becomes impossible to keep up. What do the banks do? Do they say, “Gee, you’re having a bad time and we should give you a lower payment and a lower interest until you get back on your feet.” In Fantasyland, perhaps.
Their response is to raise your interest rate to 30% immediately; making your payments so high you can’t afford them. Then they start calling, from 8am to 9pm, 7 days a week. The aggressive ones take you to court and get a judgment. This allows them to seize your bank accounts, take 25% of your take-home pay and force you to court – to tell them where you’re hiding your assets.
If just reading this stresses you out, you’ve been there. “Fair” is not in the vocabulary of a credit card issuer. You signed an agreement. They expect you to comply with your agreement. If you don’t they will use the law to make you.
The solution? Get Educated! – If you are feeling overwhelmed with debt and don’t know what to do, get educated. You do have rights and options. The longer you wait, the harder it is to dig out.
Gerald McNally is an attorney and real estate broker (licensed in the State of California) who specializes in family law, bankruptcies, business litigation, estate and tax preparation/planning located in the city of Glendale Ca. He can be reached at 818-507-5100 or by e-mail at: firstname.lastname@example.org He offers complimentary seminars and consultations for those in need.