BUT CAN AVERAGE AMERICANS AVOID THE TRAP?
by Sam Bocetta, ©2018
A recent study shows that interest payments will reach $1 trillion annually within the next decade. That’s more money than the country will be spending on its military.
This is most troubling because it reflects the overall debt problem that America is facing. It’s a bad time to be dependent upon plastic. Just ask the president’s son-in-law. In February, it was revealed that Jared Kushner owes large sums of money to credit card companies, racking up millions of dollars in debt.
Kushner’s situation is emblematic of the culture in which we live, a culture where enslavement is mistaken for privilege. We live in a society that labors under a false sense of confidence, one that allows us to believe that we will always prosper, so much so that we can purchase what we want today and pay for it tomorrow.
But as anyone who has received late-night phone calls from collection agencies can tell you, believing in our prosperity comes at a price that’s far steeper than anything we’d ever be able to afford.
The total debt owed by US consumers comes to more than $1 trillion. The average American household is in debt to the tune of at least $16,000. And this is to say nothing of the ever-mushrooming debt incurred from mortgages, auto loans and student loans.
With the recession behind us, lenders are more willing to dole out money and, therefore, more Americans are digging themselves into a hole from which they are unlikely to emerge.
In 1968, Senator William Proxmire introduced the Truth in Lending Act (TILA) to help consumers to better understand the terms of credit and the related rates offered by lending institutions. Unfortunately, credit card companies and other financial giants have developed exceedingly shrewd methods by which to circumvent this law.
One seemingly transparent tactic that they employ is the deferred interest credit card. Card issuers are often vague about the terms of deferred interest, so cardholders don’t realize that if they owe even a dollar after the six-month period (or whatever the time frame is), they will pay six months’ worth of interest on that dollar at their original balance.
This is especially common with store credit cards, the kinds that are pushed on consumers at countless big box stores and boutiques. With 3.74 billion global Internet users, shopping online and charging a purchase instead of paying in cash is becoming the new normal.
Deferred interest cards can be a boon to those who are careful to pay it off in a timely fashion, but the majority of consumers do not pay it off within the allotted amount of time and end up suffering as a result.
Laws have been enacted to protect consumers from unfair treatment. For instance, the Fair Credit Billing Act was enacted in 1974 to safeguard consumers against unfair billing practices. But there’s more on the Fair Credit Billing Act than meets the eye and, as with many laws, the language is uniformly obscure and opaque.
The Credit Card Accountability Responsibility and Disclosure Act of 2009 was passed to prohibit credit card companies from jacking up rates on existing balances, but companies have found ways around this as well.
If you signed up for a promotional rate but it was only offered for an introductory period of time, the credit card company can raise their rate. Those who sign up for a variable rate card, perhaps the most common of all credit cards, the interest rate can change if and when the prime rate changes.
The same applies if you negotiated a lower interest rate due to hardship. Hardship rates are only for a limited amount of time. Once that time is up, the company can hike the rate at will, leaving the cardholder in a sticky fiscal situation.
For those who default on payment for 60 days or more, a penalty can be enforced that puts your APR at a whopping 29.9%. Essentially, credit card debt is designed to be insurmountable. Credit card companies make gobs of money by selling debt to third parties.
For example, last year Barclaycard sold $1.6 billion in risky credit card balances to the privately-held personal loan firm Credit Shop, Inc. The older the debt, the more profit is made by debt collectors. Everyone wins…except the person who’s been driven into debt.
Fortunately for Americans, if not the American economy as a whole, there are ways to avoid credit card debt and they’re much simpler than one might expect.
Credit relief organizations urge consumers to keep and maintain an emergency fund, avoid big-ticket purchases that are outside of their budget, mark their calendars for regular payments, avoid cash advances and thoroughly research a card issuer before signing up.
For those of us who have already accrued credit card debt, it is best to see which credit card charges you the highest interest rate and focus your energies on paying that debt off before paying others. Consumers should pay off the card with the smallest balance first before using the money one was paying for that debt to pay off the next smallest balance.
With job growth at a national high, there is no good reason for Americans to rely on credit cards for their day-to-day expenses. Now is the time to recover and stay clear of the greedheads who would keep us in arrears.