Keeping More of Your Money
Spending Money That’s Not Yours
Indeed! The first time I heard that expression I was thinking that I was going to hear about the evils of stealing, burglary or holdups and possibly the financial cost of such criminal activity- Arrests, trials and jail came immediately to mind.
“If one takes what isn’t his, one could find oneself going to prison.”
Well, that’s not quite the case here. There may be some larceny taking place but not on the part of my protagonist. The protagonist (you) is the potential victim in this story and I suspect that many of you may not even be aware of it.
The Accomplice
Accomplice? This is getting a little more complicated. Almost sounds like a conspiracy, doesn’t it? Well, in a way it is. It’s the credit card.
First, a little history. When I was very young I overheard my parents talking about something connected to money. My father was relating to my mother how he stopped at the gas station earlier in the day and told the attendant to fill it up. He then opened his wallet and found that he didn’t have enough cash for the transaction; the gas was already in the car. Whoops!
My father went into the store and explained what had happened. The owner knew my father and told him not to worry and to just bring the payment the next time he went by. He also gave my father an application for a charge card for the brand of gasoline sold at the station, suggesting that he should consider getting one.
Both my parents were from Europe and had seen what financial ruin could do to a family or even a country. Borrowing money was totally contrary to their upbringing; that’s what a credit card was- borrowing money. After much discussion and reading all the fine print they completed the application and submitted it. Two weeks later they became credit card holders. A landmark event.
A New Era was Beginning
My father showed off his credit card every chance he got. Soon almost everyone had such a convenience.
The credit card industry exploded with stores, travel loyalty programs, banks, lending companies and everything to do with entertainment jumping on board.
Almost immediately some folks found that they couldn’t pay the bill when it was due- The credit card companies working with the banks said not a problem. We know how it is. Just spread the payments out a little- maybe for a few months. Go ahead and take the vacation- we know you’re good for it.
Do others keep a balance running? Well, yes-
According to Lending Tree’s Value Penguin:
- 41.2% of all households carry some sort of credit card debt.
- Households with the lowest net worth (zero or negative) hold an average of $10,308 in credit card debt.
- The Northeast and West Coast hold the highest average credit card debt — both averaging over $8,000. Link Here
I was totally astounded by those statistics but what come next is the larceny part.
What it Costs
Typically if your payment isn’t made on time or gets lost in the mail you will be charged a fee- The most common that I have seen is $39.
I can see that as somewhat reasonable since the bank doesn’t know what’s going on with your lack of payment and probably triggers more work on their part.
A Hint
If a non-payment fee is assessed a call to the company could get the fee abated- Once.
The Rest of the Story
Revolving rates are where the real larceny occurs. The US Supreme Court ruled in 1978 in Marquette v. First of Omaha that the bank of residence in a particular state rules on what interest rates may be charged regardless of where the transaction takes place. Link
By and by financial institutions moved their corporate homes to states with less restrictive rate control. Even the banks with good reputations have what I feel are exorbitant rates like, APR: (Annual Percentage Rate) of 17.99%-25.24%, or 16.24–26.24 and for someone with bad credit the rate could be as much as 29.99% plus processing fees and annual fees as well. Ouch!
More info on WalletHub
How Much?
Looking at our average household credit card debt of $8000 the interest alone could be $200 a month or more! Most companies have a minimum payment of typically $35 so the payment at a minimum would be $235 for that one time. The next month would be for $8,000 minus $35 for a basis of $7965 and so on.
If just the minimum were to be paid each month about $3100 would be paid in a year with the principle being reduced by $35 a month or $420., leaving $7580 beginning the second year.
If the APR were to be 25% then the interest would be $160 for the first month plus the minimum payment of $35. Paying in full over five years would total over $15,000 in payments to pay off an initial $8,000.
This assumes that there would not be any additional charges to the account- good luck with that.
A Survey
According to a survey WalletHub conducted asked about credit card debt and willingness to assume it.
Some of the responses:
26% are attempting to refinance their debt
61% say their debt is less than it was the prior year.
12% say they don’t remember how they got into debt.
34% feel normal about having credit card debt.
14% say having a nice meal is a good reason to go into debt while
11% feel entertainment is a good reason.
Summary
Credit card debt by households is now over $1 Trillion dollars
60 years ago there was no credit card debt.
One third of those surveyed feel credit card debt is OK.
I wonder if they teach this stuff in schools?
Thank you for reading!
J.P. Carsten
