var json_comments = new Array("
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lawnmowerdeth
December 16, 2008 4:48 PM
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I would vote \"Yes! But laws tend to suck!\"

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3 replies
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Tiber
December 16, 2008 8:29 PM
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@lawnmowerdeth: Seems pretty close to my desired vote of \"Yes! If only lawmakers weren't incompetent and/or in big business's pockets!\"

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kc2idf
December 16, 2008 5:33 PM
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@lawnmowerdeth: Roger that! The trouble, though, is that there is a boatload of corporate lawlessness that has led to the mess we are now in.

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The_Red_Monkey
December 16, 2008 5:50 PM
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@kc2idf: Hey, don't leave consumer greed out of this. If people bought homes they could afford or did not buy a home at all since they could not afford it we would not be in this mess. If people did not finance a TV then we would not be in this mess. Just because the credit is there does not mean you have to use it.

Same with McDonalds, its there but you don't have to eat there. I think that we are relying on someone else to blame and control what we do.

As for the article and using it for emergencies only? $70k in emergencies. That's a joke and he is lying to himself and whomever wrote the article.

Hell I replaced the engine in my Nissan and it was $4 grand. How much does his car breakdown or is he just driving too nice of a car and should downgrade to a Focus?

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johnva
December 16, 2008 6:32 PM
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@The_Red_Monkey: Of course, most of the \"credit crisis\" appears to me to have been caused by the abusive use of poorly regulated derivatives like credit default swaps. So while there still would have been some serious problems caused by the housing bubble bursting and people defaulting on their mortgages, we probably wouldn't have seen the whole credit market seize up and massive banks go down in flames if it weren't for the retarded and irresponsible practices of financial \"professionals\". The failed mortgages are just the underlying credit for the derivatives that really magnified the problem tremendously. So while obviously, yeah, we wouldn't be in this mess if more people had been more responsible with their home purchases, those people are only the spark that started the fire. It was the I-bankers and hedge fund assholes who were spreading gasoline around the room beforehand.

I also agree that $70K for \"emergencies\" is impossible unless he did it in a really irresponsible and stupid way like using credit card cash advances for everything.

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warf0x0r
December 16, 2008 6:31 PM
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@The_Red_Monkey: I saw a Susie Orman show, its on late and I was up, where a woman and her husband had finance 230k in housing renovations, jewelry, and consumer electronics on credit cards. That is so ridiculous I couldn't stop watching.

That being said, its sad when someone gets put in a bind like losing a job. And then is put through it by having all their access to emergency funds, savings and debt, to get themselves back on track.

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jusooho
December 16, 2008 4:52 PM
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From the article: \"Spaulding, 40, says he's a conservative spender who got trapped under $70,000 of credit card debt and high finance charges after 15 years of relying on his credit card for emergencies, such as car repairs\"


Humans, we are very good at fooling ourselves.

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humphrmi
December 17, 2008 2:43 AM
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@jusooho: I kept reading that, thinking \"there's got to be more to this story.\" 2 airline tickets two years ago, even last minute, would not have caused this level of debt, unless it's all overlimit and late payment fees since 2006.

I've met people who consider themselves \"conservative spenders.\" I've met them at Disneyworld, while we're paying cash and they're flipping out the credit cards. I've met them at casinos, where I'm playing my mad money and they're playing their last $20 of grocery money. Funny thing is, I don't consider myself a conservative spender. I spend wildly when I have the means and reason, after savings and bills are paid. Based on my experience, I view others who consider themselves \"conservative spenders\" very suspiciously.

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SolidSquid
December 17, 2008 1:03 PM
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@humphrmi: I think what the article is saying is that the large, one off payment he had to make on the tickets in addition to what he already had on the cards pushed him over the limit of what the credit card companies consider a risky debtor, so they upped the interest, rather than it being just the tickets themselves that caused it.

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edosan
December 16, 2008 10:46 PM
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@jusooho: Wow -- if he considers $70k in debt \"conservative spending,\" what would he classify as \"out of control?\"

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ZukeZuke
December 16, 2008 8:26 PM
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@jusooho: Agreed! I don't feel one shred of sympathy for this \"conservative spender\". For him to blame financial ruin on the credit card company is total I'm-a-victim-mentality. It's more probable that conspicuous consumption and an utter lack of basic financial sense that's caused his problems.

Unless you've lost your job, have 5 kids, and have absolutely no cash in the bank OR have major medical problems w/no insurance, I don't understand how in the world you can accumulate $70k in credit card charges. That buys one helluva lot of big screen TV's, iPods, Xboxes, jumbo SUV, stainless steel refrigerators, etc. etc. I'd poop my pants if I had even $5k in rolling credit card debt. The interest would be stupid! Bastards like this will walk away from their debt through bankruptcy and leave everyone else holding the through higher rates, tighter credit, etc.

He needs a good swift kick in the ass and his Mommy to take away his credit card, if you ask me.

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SonicMan
December 16, 2008 7:59 PM
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@jusooho: I have about 30K in credit card debt. But its mostly 2.9% or lower. Bought a car that way a few years ago. Still paying it, but using the card was lower that the banks rate.
2.9% should be good for the life of the loan now, but I too would be screwed if the back somehow was able to change the rules and make it 24%.

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sasper
December 16, 2008 8:35 PM
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@SonicMan: you'd also be screwed if you had to take out a mortgage or loan for anything carrying a 30K balance on a credit card. No thanks!!

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SonicMan
December 16, 2008 8:57 PM
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@sasper: 30K is not really that much. I Have tons of Credit Cards. I could probably payoff my home with Cash Advances if I had to.


Also, this was not for (ipods, TVs, dinners, ect) This was for a car. If I ever lost my job, the unsecured car debt is better than a car loan. They cant take the car this way.


If I did lose my job, I would probably try to payoff my house with Credit Cards and just ruin my credit, but not lose anything.

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Trai_Dep
December 16, 2008 5:31 PM
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@jusooho: No lie. I could not imagine having $70K on a credit card. Heck, outside of school loans or a mortgage, I couldn't imagine having more than several grand in debt, period. But if I did, I'd hope I'd have the self-respect to have \"Wanton Spendthrift\" tattooed about my nether regions to compensate.
(I'd go for the forehead, but were I that person, I might need another loan and hopefully the loan officer wouldn't check down there)

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johnva
December 16, 2008 6:27 PM
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@Trai_Dep: I don't even SPEND anywhere close to $70K in a year, even including my half of the rent. Of course, if he was taking out cash advances to pay his housing bills or something, then I can see it adding up very quickly given that those are at a higher interest rate typically.

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Erwos
December 16, 2008 5:31 PM
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@jusooho: Ding ding! You're not a \"conservative spender\" if you're $70k in debt.

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nataku8_e30
December 16, 2008 4:52 PM
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Hrmm, if I were in this position, I would probably just not pay the credit card bill. Sure, it destroys your credit rating, you have to do pretty much everything with cash and no bank will ever talk to you again, but it still beats losing my house.

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MadameX
December 16, 2008 6:26 PM
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@nataku83: Absolutely. The mortgage should always get paid first.

Ya gotta have a place to live...

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docrice
December 16, 2008 7:29 PM
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@MadameX:
I say pay the car first... as per the Porsche Club motto, \"You can sleep in your car, but you can't drive your house.\"

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Marshfield
December 16, 2008 8:53 PM
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@docrice: 70,000 is enough to file for bankrupcy. If he had that card or other cards, I bet there's other debt he's dealiing with too.

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varro
December 16, 2008 9:50 PM
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@Trai_Dep: Sure, and for not having 3 months of income in a savings account - never mind the fact that that 3 months can run out.

\"They bought their tickets. I say let them crash!\" - Counterpoint Panelist, \"Airplane\".

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johnva
December 16, 2008 6:24 PM
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@nataku83: Yeah, it's hard for me to comprehend prioritizing your credit card bill above your house/rent payment. If you can't pay, pay the important stuff first.

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dragonvpm
December 16, 2008 4:58 PM
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@nataku83: That's not even entirely true, banks and CC companies will eventually talk to you again. You just have to wait a few years before they do.

This is definitely a place where people should learn the difference between secure and unsecured debt. For whatever reason, if you find yourself unable to pay all of your bills, the first ones to get ignored should be the unsecured ones. Pay off the house/car etc... (anything that can be repo'ed/foreclosed) and work to pay off your credit cards as you are able to.

I'm not excusing bad decisions and bad spending habits, but it should be a no brainer, you pay your house and you pay for food before you worry about other things (because let's face it a foreclosure looks worse than a few charged off credit cards)

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Pylon83
December 16, 2008 4:59 PM
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I'm sorry, but there is simply no excuse for running up so much credit card debt that your minimum payment is $2,000 per month. It's simply irresponsible to let it get that far. Further, while no one ever reads the Terms of their credit card agreements, you do indeed agree to let the bank adjust your interest rate. If you don't like it, get a debit card.

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Anonymous
December 17, 2008 8:08 AM
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Actually, yeah there is an excuse for running up $70,000 in credit card debt like we have, and that's because of out-of-pocket health care costs that run about $30,000 per year, year after year. (Most of that is $2,500 per month in premiums for my spouse and myself, not even counting the premiums for our daughter.) It sure seemed like we were doing the \"responsible\" thing by paying for our own health insurance premiums and surgery costs. It kind of hits me in the gut when guys like this call very sick people like me \"irresponsible.\" If it makes him feel any better, the bank is foreclosing on our house. That should make guys like him happy.

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joellevand
December 18, 2008 7:25 PM
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@AsherDadgits: And you or your wife's profession is what that your premiums are that high?

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Mary Marsala with Fries
December 16, 2008 8:08 PM
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@Pylon83: With high interest-rates, that's not even terribly much debt. I've seen a lot worse from families whose only sin was being a bit clueless and not keeping track for a long enough period of time that things got out of hand.

Oh, you get the BLAME THE VICTIM PRIZE, though, for getting in there in less than the fifth comment! Go you!

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johnva
December 16, 2008 8:21 PM
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@Mary Marsala with Fries: How are you a \"victim\" just because you voluntarily signed up to put yourself in debt?

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Corporate_guy
December 16, 2008 6:58 PM
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@Pylon83: Well no lender should be able to raise rates on past debts. That is loan sharking. The interest rates of past debts should be locked in at the rate they were given. The only exception being pre-agreed to introductory rates with time limits.

But what really boggles the mind is how someone who can \"barely\" afford 2k a month in credit card payments gets into 70k in debt. That someone must be making at least 50-70k a year. But I would agree that if your rates increase, turning a 1k payment into a 2k payment, the correct course of action is to stop paying and screw the creditor. Call them up and tell them if the rates are not returned to where they were you will have to stop paying. See if they will accept reason. One would think they would rather get paid 1k a month, than have you stop paying if they up the minimum to 2k a month. Of course creditors don't always think logically.

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varro
December 16, 2008 9:48 PM
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@Corporate_guy: What happens is that credit card companies would up credit limits without a check of the borrower's income.

Talk about a NINJA loan...

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johnva
December 16, 2008 7:08 PM
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@Corporate_guy: Why should they not be able to up the interest rates on past debts, if the person explicitly agreed to allow them to do that? That is the case for virtually all credit cards. There is no such thing as a fixed-rate credit card, as far as I know. It's not like people signed up for a fixed-rate card and then they magically breached their contract and upped the rate.

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EarlNowak
December 16, 2008 9:35 PM
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@johnva: Sure there are fixed rate credit cards. I've got one through an affinity group- it's 9.9% fixed. Any member of this organization can apply for one.

But there's still a default rate of 29.99%. To hit that I have to be late or over my limit twice within twelve months. I'm basically fine with that provision, too- but what makes me annoyed is there's no provision for getting the original rate back once you've triggered the default rate. And of course, the end of the fine print says \"All terms, including APRs and fees, are subject to change at any time for any reason.\" So I guess it's a fixed rate card to the extent that I can trust on a bank's goodwill..

So I guess you were right. There is no such thing as a fixed-rate credit card.

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johnva
December 16, 2008 10:07 PM
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@EarlNowak: Yeah, it depends on what you mean by \"fixed rate\". There are definitely cards where the issuer SAYS they won't change your rate normally if you pay as agreed. But virtually all of them contain language in their agreement that says that they can change the rate under some certain conditions, blah blah blah.

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shepd
December 16, 2008 6:07 PM
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@Pylon83:

I'm supposing you've never been out of work, broke, and needed to buy groceries and pay rent. Let me know how that works out for you, because it happens to everyone...

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nataku8_e30
December 16, 2008 5:03 PM
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@Pylon83: I can understand a credit card company freezing an individual's account if they perceive them as a risk (although, the criteria used for that should probably be something a little more standardized), but there should probably be regulation in place that doesn't allow banks to adjust interest rates on debt already in existence.

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Pylon83
December 16, 2008 5:08 PM
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@nataku83:
Allowing an increase in interest in response to a corresponding increase in risk isn't unreasonable. I assume the logic for the rate increase is the hope that the credit card company will recover the actual amount \"loaned\" quicker, so that if the debtor does default, they are only out the interest owed, not the \"principal\". So if the OP charged $10k, but now owes $30k after interest and fees, the bank wants to get back at least $10k as quick as possible. By raising the interest rate and the minimum payment, they can recover their out-of-pocket quicker. If people don't like the adjustable provisions, don't use credit cards that contain them.

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exconsumer9
December 16, 2008 7:55 PM
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@Pylon83: But they've already assessed the risk and issued the loan. The idea that the consumer has somehow \"increased risk\" doesn't make sense. If the credit card company feels that the individual can only use half of the credit line safely, then they should only have that amount as a credit limit.

I know that some would argue that the credit card companies should be free to operate as they want, but this is a patent example of a lack of due diligence. If they can properly estimate risk, no one's rate should ever rise (provided they paid on time etc.). If they can't, it's time for intervention.

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JustThatGuy3
December 16, 2008 8:11 PM
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@exconsumer9:


What happens if a customer has the income to support a $5k credit line, so bank A gives that to them. They promptly borrow $4k. No problem so far.


Customer then goes out and get a $10k credit line from bank B, and charges $8k on that. All of a sudden, customer's got $12k of debt, which is way above what bank A thinks is safe.


So, this is a way in which the customer has become a much worse credit risk than he was when bank A gave him credit, and bank A had nothing to do with that. Bank A could eliminate the available credit on his card, which would limit their exposure to $4k (not the original $5k potential), but that's about it - since they can't \"call the loan\" and force the customer to repay, all they can do is jack up the interest rate in the hopes that this pushes the customer to pay bank A off _first_.

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exconsumer9
December 16, 2008 8:57 PM
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@JustThatGuy3: Okay, but they are both basing the amount of credit given from the same credit score and same credit report. So why would there be such a discrepancy in the first place? Somebody did an incomplete job. I understand what you mean, but to me, it's representative of a broken system rather than an appropriate move by Bank A. If the system is so efficient, why does it ever get to this point?

Eliminating the remaining credit would be a move I think anyone would prefer, or possibly giving the consumer a choice between the two. Someone else mentioned a higher but locked rate. That's what everyone wants, but no one gets it: the credit market has engineered the opposite product. I bet if the customer were to have contacted Bank A before he took out a second line of credit he wouldn't have gotten a straight answer about Bank A's response. The whole thing is designed to get people like this man exactly where he is, and I think that needs to change.

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johnva
December 16, 2008 8:23 PM
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@JustThatGuy3: It would be interesting to apply some game theory to the behavior of the different banks here...

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johnva
December 16, 2008 8:08 PM
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@exconsumer9: Except that they factored in the risk ON THE ASSUMPTION that they could increase rates based on certain flags. They didn't do their risk assessment based on the assumption of a fixed rate. If they had, the initial rate would likely be higher, just like the interest rate on a 30 year fixed mortgage is usually higher than the interest rate on an ARM. People agreed to allow them to raise the rates, so it's not like this is a surprise.

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nataku8_e30
December 16, 2008 5:42 PM
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@Pylon83: While I understand this \"logic\" as well, under these economic conditions, it's basically insanity. It's kind of like saying \"If I don't put gas in my car, I'll get better gas mileage\" and it backed up by the huge losses banks are taking. These days, taking a risky account and increasing interest / fees / penalties, etc... seems to result in an almost immediate default as they push the account holder past the limit of what they can maintain. This goes not only for credit card debt, but every other form of adjustable loan as well.

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mac-phisto
December 16, 2008 6:13 PM
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@nataku83: qft. & it really makes no sense with unsecured debt. there are some shady home & auto lenders out there that basically exist(ed) to get you to default, so they could absorb any equity in the collateral. but when there's zero collateral to recover, what do you gain by pushing a borrower over the edge?

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nataku8_e30
December 16, 2008 6:40 PM
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@mac-phisto: that's exactly my point, there's nothing to gain! These guys are using outdated risk formulae and don't know what they're doing. They're hemorrhaging money and continuing to push individuals over the edge. The only justification I can think of for doing this is it eliminates \"uncertain\" debt, so it's easier for accountants and analysts to make predictions when they have a guaranteed loss. Anyway, the point I was trying to make to Pylon83 was that while increasing interest rates on high risk debt may have been reasonable at one time, it no longer is.

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EarlNowak
December 16, 2008 5:28 PM
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@Pylon83:
If people don't like the adjustable provisions, don't use credit cards that contain them.

They all contain them!

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TecmoTech
December 16, 2008 5:07 PM
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@nataku83:

I like this rule. I voted yes in the poll because I was thinking of something like this. They can raise the rate on future purchases, but for them to raise the rate on my previous purchases doesn't make sense.

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OmniZero
December 16, 2008 4:59 PM
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Credit card reform could be helpful, but then again the government shouldn't step on too many things. Sometimes people are just dumb. They use their credit card over and over thinking it's free money only to realize they are in over their heads.

Now to take people with good mortgages and punish them that way for a credit purchase seems a little unreasonable.

I think too many financial things are intertwined. Bad credit means losing your house that is paid to another bank? Crazy. It's like Best Buy taking the TV you bought from Target because you couldn't pay Best Buy for a memory card you bought from them.

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blackmage439
December 16, 2008 7:28 PM
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@OmniZero: \"Sometimes people are just dumb.\"

Truth be told. My friend is an excellent example of that. This person managed to rack up over $500 in charges and fees on their Old Navy credit card. They would barely pay the minimum balance and interest, but let the balance sit. Sometimes, they wouldn't pay at all, and Old Navy's collections hounds would constantly, um, hound them. I finally got sick of hearing about it and offered a bailout of my own. The card was paid-off, but Old Navy had already shut it down.

That was over two years ago. Before the Financiapocolypse hit, the person tried applying for a couple of credit cards; both designed for people with bad credit and one even carried an annual fee. They were denied for both. This person has no credit cards and a terrible credit rating. I tried my best, but it seems I cannot help the situation.

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Lameth
December 16, 2008 7:24 PM
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@OmniZero: One of the things these companies do is take one late payment on one card, and if there are multiple cards in the same name, all of the companies raise the rates. It could be something as innocent as the CC company moving up due dates (this never happens...) or someone screwing up and not having the funds available, but this then compounds the problem expotentially.

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madanthony
December 16, 2008 5:04 PM
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@OmniZero:

Bad credit means losing your house that is paid to another bank? Crazy

Only if you stop paying your house off to pay your credit card bill. Which would be pretty stupid.

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OmniZero
December 16, 2008 5:49 PM
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@madanthony: Ohhhh yes it would. I'd rather have a house to live in with nothing in it than a bunch of stuff with no house to put it in.

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snowburnt
December 16, 2008 5:00 PM
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I know there are some bad consolidation companies out there, but there are some good ones too that will work with your banks (mainly cause they are credit card company cronies) and basically give you a loan to consolidate your credit cards and make it so that for about 3-5 years you won't be able to get a new one because you have to cancel your current ones.

basically fixes three problems unless you'd rather foreclose

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sir_eccles
December 16, 2008 5:03 PM
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If by \"credit card reform bill\" you mean \"introducing financial responsibility into the school curriculum\" then yes.

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Pylon83
December 16, 2008 5:10 PM
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@sir_eccles:
I would 100% support a required financial responsibility class in schools. Lots of parents clearly can't teach responsibility, might as well let the professional educators give it a shot. I suspect you could get some banks/credit card companies to underwrite some of the costs, as they have a vested interest in at least a minimal level of financial responsibility (or at least want to be perceived that way)

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Eyebrows McGee (now with more baby!)
December 16, 2008 5:57 PM
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@Pylon83: It's required in Illinois to graduate high school and has been for 20 years. (Not just the class, but you have to pass a test, too.) It hasn't resulted in a marked increase in financial literacy.

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bohemian
December 16, 2008 5:47 PM
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@Pylon83: Some schools already are and it should be a nationwide required course for graduation. It needs to be taught in schools. There are too many parents who are clueless morons when it comes to finances. If they even bothered to teach what they know to their kids it could be bad information. Parents who buy all their furniture at the rent to own store or have $80k in credit card debt consisting of designer clothing, swanky restaurants, vacations & Starbucks are hardly financial role models.

One of our kids took a HS class for financial literacy last year. He knows more than most adults do now. Since things change constantly like what is the latest scam, teaching it in schools means we can also evolve the class content to tackle new bad ideas as the finance industry dreams them up.

I would have never imagined universal default would be a mainstream business tactic when I was in HS.

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Trai_Dep
December 16, 2008 5:04 PM
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So, it's their damn fault for getting jobs from which they can be fired from?

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johnva
December 16, 2008 6:23 PM
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@shepd: So in that case, the credit cards were a really good thing, because otherwise the people would be starving and on the streets. Why would we want to put up more barriers to people getting into credit card debt if people are only using them that way when the alternatives are far worse? Let's face it...a broke, out of work person is a high credit risk. And high risk has to be compensated by high interest rates if anyone's going to loan them money.

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failurate
December 16, 2008 6:45 PM
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@johnva: This story, from an anecdotal evidence stand point, is fail. They chose to tell stories of people who were on the edge before the edge got closer to all of us.

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johnva
December 16, 2008 6:50 PM
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@failurate: Yeah, I agree. One of the big financial responsibility concepts that a lot of people seem to have trouble grasping is ANTICIPATING future change of circumstances. You need to give yourself a reasonable margin for error. This is why people should save at least 6 months of living expenses in case they lose their job, etc and not take out a bunch of debt on credit cards if they're already not able to pay it off.

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Trai_Dep
December 16, 2008 5:27 PM
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@Trai_Dep: Just so I have this straight.
Joe Consumer is buying out banks thru Paulson's bailout, which gives unrestricted money to banks to do with what they will.
Then banks turn around and jack Joe's credit limit, creating usurious rates which drive Joe into bankruptcy or ruin. Joe loses his home, which pressures banks further.
This requires Joe to be tapped again to save the banks thru the no-restrictions bailout.
(repeat as needed)

Whoa, the banks must be SO happy to have destroyed the global economy while a Republican runs things.

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Ingram81
December 16, 2008 7:12 PM
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@Trai_Dep: Normally I tend to not agree with you, but with the exception of your last line, I think you hit it on the head. Someone is going to end up getting farked at the end of the cycle. And thats the sad fact of it, we have created our own spiral slide into Hell.

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Belabras ate my dingo!
December 16, 2008 5:16 PM
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OMG yes. Under the current rules CC companies are worse than loan sharks!

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johnva
December 16, 2008 7:20 PM
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@Belabras: No, they aren't. The worst they can do to you is sue you and take your money while ruining your credit rating.

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PittDragon
December 16, 2008 6:43 PM
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@Belabras: Usually with loan sharks they just break your legs if you don't pay your debt, but you can keep the house. So yeah its probably a better deal!

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rbb
December 16, 2008 5:17 PM
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Even USAA is changing the rules on its customers. My card with them currently has a rate of 4.5%. Starting next Feb, the minimum rate will be 6%. No big deal, since I don't carry a balance...

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halftank
December 17, 2008 3:47 PM
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@rbb:

I got that letter from USAA too. The rates on new car loans was 2% more than for my credit card, now the interest rates will be equal.

Not that I'm buying a new car anytime soon, I just thought it was interesting that putting a car on a credit card was a better deal for a while.

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theblackdog
December 17, 2008 2:36 PM
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@rbb: Ooh my dad is going to be pissed. His credit card currently is Prime Rate only for the interest.

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sean98125
December 16, 2008 5:30 PM
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Why would they be risking foreclosure? You pay your mortgage first, then the credit cards.

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barty
December 18, 2008 8:12 PM
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@sean98125: Credit card companies yell the loudest when you're late. Also people fail to realize that once they've gone that far down the tubes that their credit is already ruined and that trying to pay everyone to keep them happy isn't going to magically repair it. At that point, the wisest thing to do is to tell the collections folks to stop calling (you will contact THEM when you've got the money to start repaying them) and focus on keeping a roof over your head.

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HRHKingFridayXX
December 16, 2008 8:18 PM
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@sean98125: I think the bigger problem is that people are using credit cards after they run out of their negative savings while unemployed (and to be fair, unemployed longer than historically normal). First you drain the savings, then max out the card, then default the card, then foreclose on the house. I love how USA today just jumps to conclusions.

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sven.kirk
December 16, 2008 7:13 PM
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@sean98125: Thank you. That was my very first thought before even clicking the link to read this article.

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kwsventures
December 16, 2008 5:44 PM
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Poor financial planning. It was just a matter of when not if this guy was going to file bankruptcy. Simple rule of thumb: if you can't pay off the credit card each month, you can't afford to live your current lifestyle. You have some choices. Make more money and/or reduce expenses. You need a positive monthly cash flow. I came to she same conclusion about 23 years ago. I got a 2nd job, working in the evenings about 14 hours per week. I never spent the money. I invested it. Now I have a nice investment portfolio. What did I miss? I have seen zero prime time sitcoms in the last 23 years. So I really missed nothing. I gained a lot.

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xxoo
December 16, 2008 5:54 PM
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I know there are extraordinary circumstances, but the majority of the people I know who are in trouble have garages packed to the ceiling with crap -- crap that cost money. I do not understand this stupidity.

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varro
December 16, 2008 9:53 PM
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@xxoo: @xxoo: If you don't have the crap, you are a communist, plain and simple.

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gggtur
December 16, 2008 6:00 PM
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This site can be a little vague in their stories...I'm expected to believe that all this was over the purchase of plane tickets? I bought plane tickets last month, received a bill from the credit card company, paid it, and that was the end of it. I'm not about to lose my house. So what's really behind this story?

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holvey
December 16, 2008 10:00 PM
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@gggtur: Well you know that weekend trip to tahiti just wouldn't have been the same flying coach...

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johnva
December 16, 2008 6:14 PM
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@gggtur: Clearly, if a few plane tickets pushed you over the edge, you were very near the edge already.

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Etoiles
December 16, 2008 9:50 PM
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@johnva: Ever had to buy round-trip tickets for 4+ people to certain destinations on under 24 hours' notice? What would be a $1000 trip total if you had time to plan it properly is suddenly $6000.

(Why yes, I did spend about six hours straight on the phone playing travel agent for a dozen elderly relatives all at once when my grandfather died.)

Unfortunately, emergencies are more expensive than plans are.

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the_wiggle
December 17, 2008 4:00 AM
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@EtoilePB: cost like that are why our family's out of town relatives' funerals are attended only by our relatives in that town :( :(

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nicemarmot617
December 16, 2008 6:05 PM
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Why are there so many people out there who seem to think credit cards = free money? No, it's your money, and you're going to have to pay it back plus interest. I use credit cards for the sake of chargebacks and fraud protection and cash back; I pay my bills in full every single month (the only exception in my 9 years of credit history came last year when I had to pay for oral surgery out of pocket. Even then I still paid much more than the minimum on my credit card bill that month.) I just don't find it that difficult.

I even know multiple people with credit card problems. They don't seem like idiots. I don't get it. I totally understand getting into trouble if you lose your job, but otherwise...what the hell is wrong with you? Who has a $2000 minimum monthly payment unless they're fabulously wealthy and put all their spending on their credit card?

As for cc companies raising the rate on existing debt - total BS. When you incurred that debt, you did so at a certain interest rate. They shouldn't be able to change it arbitrarily for existing debt.

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Mary Marsala with Fries
December 16, 2008 8:11 PM
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@nicemarmot617: \"Why are there so many people out there who seem to think credit cards = free money?\"

Because for every one person saying what you're saying, there's about a billion dollars worth of professionally-designed advertising in every imaginable public space, screaming that it's free money.

Who do you think is louder?

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johnva
December 16, 2008 10:10 PM
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@Mary Marsala with Fries: So advertising relieves people of responsibility for their actions? Everyone would be bankrupt if they believed all the claims made by advertising.

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johnva
December 16, 2008 6:18 PM
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@nicemarmot617: The thing is, you actually didn't incur the debt \"at a certain interest rate\". You actually agreed to terms that said they could change the interest rate whenever they want. Complaining about them changing the interest rate on an existing debt is exactly the same as someone whining that their ARM didn't stay at 4% interest like it was at first even though they explicitly agreed to a mortgage that was adjustable rate. The moral of the story is simply to read the terms carefully, and understand what you're doing when you carry debt over. And you don't have to be a legal expert to be able to read that the interest rate can change.

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floraposte
December 16, 2008 8:02 PM
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@johnva: True, but the question on the table is whether they should be allowed to make that a condition. It's not like fixed-rate loans are unheard of, after all, and there have been legal limitations enacted on credit card policies in the past. Agreement to a contract doesn't even prove that the terms are legal, let alone that they should be.

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johnva
December 16, 2008 8:14 PM
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@floraposte: Well, it's not like variable-interest rate loans are anything new, either, and they shouldn't go away. There might well be interest in a fixed-rate credit card product if someone offered one. But it just seems a little unfair for people to complain after the fact about it while enjoying it before it actually bit them. If they had signed up for a fixed rate product, the interest rate would probably be higher. I'm guessing that's a major reason why there aren't any fixed-rate credit cards available: it's hard to compete against all your competitors offering \"variable\" rate cards at a lower interest rate. People don't think about the future.

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floraposte
December 17, 2008 12:45 AM
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@johnva: So would you have no problem if the regulation operated only forward--that current CC balances wouldn't be subject to it, but that any new debt incurred couldn't have its interest rate jacked up? That would preclude your objection to changing the rules mid-game, as it were.

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johnva
December 17, 2008 3:16 AM
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@floraposte: I'd be fine with a credit card company offering that as a selling point on their product. I don't think it should be a law, necessarily. The easiest solution is just to not pay credit card interest by not carrying a balance.

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Jevia
December 16, 2008 6:24 PM
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In Dan's case, the credit card interest rate increased \"doubled his payments to $2,000\" meaning he was originally spending $1,000 a month on his cards. Still a goodly sum, but not completely outrageous. I carry a balance on my cards that I'm working to pay off. Not as high as the people in the articles, but more than a few thousand too.


I do hope that the new credit card rules go through and put some limits on the cards. They should not be able to raise interest on already existing balances, and they shouldn't be able to raise interest rates until one is actually late on their payments.


I also agree that High Schools should have a course on real life economics so kids don't get pulled into this kind of debt, especially while at college.

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CumaeanSibyl
December 16, 2008 8:17 PM
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@Jevia: I don't know if such a course would actually be very good. Few districts would have the money to hire someone with qualifications, and developing a curriculum that didn't offend somebody would be difficult, so what you'd end up with would probably be a useless \"finance-lite\" course taught by the softball coach.

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johnva
December 16, 2008 8:25 PM
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@CumaeanSibyl: All they really need to do, critically, is just get people to grasp what compound interest means. Most of the other information is just details that people can figure out on their own.

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JustThatGuy3
December 16, 2008 7:15 PM
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@Jevia:


No, he wasn't originally \"spending $1,000 a month on his cards,\" he was PAYING $1k a month on his cards. Using a typical 2% minimum payment, that could mean he had ~$50k in debt on the cards.

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johnva
December 16, 2008 6:37 PM
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@battra92: I don't think a course would make a huge difference, though it certainly couldn't hurt. It's already obvious to anyone with even a rudimentary understanding of math that you shouldn't borrow money at 25% interest if you don't have the means to pay it back immediately. Don't people intuitively grasp compound interest?

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battra92
December 16, 2008 7:56 PM
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@johnva: Probably not a huge difference since most people \"learn\" this stuff at home. The bright side to this whole mess is that we may, like the generation who were young in the 20s, may wise up and learn our lesson (though hopefully not make the mistakes of FDR etc. again)

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battra92
December 16, 2008 6:31 PM
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@Jevia: We had personal finance at my high school. I was appalled to find out that the public school in town didn't nor do most schools.

It's one program I think should be required for graduation.

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failurate
December 16, 2008 6:25 PM
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So... in an attempt at managing risk (so they say) they create the disaster they were trying to avoid?

Brilliant.

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failurate
December 16, 2008 6:48 PM
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@failurate: The other possibility is that Credit Card companies are not trying to avoid failure, that failure has already happened or is happening and this is their failure mode.

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johnva
December 16, 2008 6:53 PM
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@failurate: Or that someone is profiting from the failure. See: mortgage backed securities crisis, credit default swaps, etc.

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rpm773
December 16, 2008 6:28 PM
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@shepd: What would one do in this situation if he didn't have a credit to run up the balance on?

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shepd
December 16, 2008 10:21 PM
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@rpm773:

(This is all assuming you don't have savings, which a majority of people DON'T have, sometimes through no fault of their own)

One would move out of their rented apartment and be put on the 3 year waitlist for government housing (that's the length of the waitlist in my area).

During those 3 years, you would need to find either a source of income, or someone who likes you enough to take you in. If you don't have parents anymore, or they hate you, and you don't have a very, very good friend who doesn't mind you living with them for 3 years (or until you find a job) you are homeless and will need to visit a hostel at night.

As far as food goes, you need money for that. If you lose your job due to a fault of your own (ie: Being fired) you will need to go on welfare. It can take months for that to happen and the government doesn't backpay. If you lost it due to no fault of your own, you'll need to go on the pogey. This normally takes 9 weeks to process, during which time you also have no income and again, the government won't backpay.

While you'll be without money for quite a while, you're better off on welfare, as that will step your name up the housing lists. In that case it can take as few as just 12 months to be given housing.

Once you are on welfare, you'll have enough money for food, however, you won't have enough money for rent proper--however, you will have enough money to rent a room. Unfortunately, as the government must find you this accommodation, and they also must announce who they are, all of a sudden the rooms are \"unavailable\". Darn! Nobody wants to rent to a welfare deadbeat. These \"benefits\" aren't available while you are on the pogey, which for someone making $8.75 an hour pays something like $800 a month.

The question is, during the 2-3 months you're without food and shelter, are you willing to live on the street during the day and eat at a soup kitchen? Or would you rather run up your credit card a few thousand dollars that you can't pay back, since pogey won't pay enough, and you'll be lucky to pay your hydro bills on welfare?

Of course, again, during this time you will have no place to store any possessions at all outside your own pockets. Someone who loses their job at the wrong time who refuses to rack up debt will lose every single possession they own rather quickly, and will likely rack up debt trying to throw them away if they are unsaleable, which the majority will be.

Pick your poison.

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the_wiggle
December 17, 2008 3:53 AM
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@shepd: now, visualize enduring this choice slice of hell with your wife & kid(s). . .

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battra92
December 16, 2008 6:30 PM
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Umm, 70K in Credit Card debt?

Let him eat cake. He made his bed now he can lie in it. A fool and his money are soon parted.
[/cliche list]

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Anonymous
December 16, 2008 6:32 PM
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My credit card rate went up 5%, increasing my payment by $100 ($200 to $300). It's not a lot to some people, but for me I'm suddenly having issues paying my bill. It's really in their best interest not to do that.

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narq
December 16, 2008 6:51 PM
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Just yesterday I was thinking, what really caused the recession? The war? Foreclosures? Defaults? Bad Loans? Credit Cards? No. It's banks. The banks screwed up, the government bailed them out, and now we pay for it. It's just getting worse because the banks are just making things worse causing more defaults and more foreclosures. The banking industry needs reform, that is all. They are completely and only to blame for this problem. You didn't see BoA having money problems. Why? They didn't do subprime mortgages. They didn't squeeze loan holders for every penny and raise rates to insane levels. How much money was in that bailout now? How many jobs have been lost? Can we really blame people for this when it was the banks that took the risk?

It's not those in debt's fault that our economy is bad, it's the banks that made those stupid loans in the first place. I don't trust the government to fix it, and I don't trust the banks to do what is right. So apparently we're all just screwed and hope you don't lose your (insert item here).

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AtomicPlayboy
December 16, 2008 9:47 PM
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@narq: By disregarding the role that the borrowers played in this mess, you're effectively arguing something like the the nation's drug problem is solely caused by drug dealers. It isn't, it's caused by the folks who decide to use drugs, either ignorant of or disregarding the risks of this behavior. I'm not defending drug dealers, but you have to recognize that they couldn't exist without users.

If there were not a large group of financially irresponsible people who somehow thought that they were entitled to home ownership regardless of their meager earnings and savings, there would be no problem here. A child could understand the simple math, or at least know to avoid entering into an agreement where they did not understand the math, but somehow the foolish adult gets a pass on this. Why wouldn't you include the borrowers along with the banks in your formulation?

As for the fix: am I the only one who thinks that the bailout was the biggest sub-prime loan of all?

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sven.kirk
December 16, 2008 7:25 PM
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@narq: WRONG!!!
Sales AND personal responsbility is to blame. In every field.
\"Can't afford it? We will just fudge a few numbers and do a no-doc loan.\"
\"Oh, don't worry about reading the contract. I got you the best deal for you.\"
\"You can't lose with an ARM. When has the economy gotten so bad that the interest will kill you.\"
\"Sure we can roll-over what you owe on your vehicle, into a new(er)/different one.\"

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johnva
December 16, 2008 6:58 PM
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@johnva: Oh, and this is why you shouldn't just hand over money to banks with no strings attached. All bailout money should be contingent on the government at least temporarily taking total control of the bank's management in order to ensure that the money is spent in a responsible way.

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johnva
December 16, 2008 6:56 PM
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@narq: Why shouldn't the banks just make the problem worse, profiting as they go, if the result of that is that the government will step in and fix their problems with taxpayer money? That's the behavior you reward when you bail them out. It's actually rational for them to keep doing it, up to the point where even the government can't handle the magnitude of the problem anymore. It's just a profit-making strategy.

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failurate
December 16, 2008 6:57 PM
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@johnva: I think you have hit the nail on the head. If a credit card meltdown wasn't already going to happen, they will now certainly make it happen.

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courtneywoah
December 16, 2008 7:05 PM
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I dunno, im a little tired of the credit card debt situation being blamed on poor or irresponsible people. Some need to use credit cards in order to survive (believe it or not) There are those out there that have great jobs and work hard and are still unable to make ends meet. Why is this? Perhaps cost of living, the high cost of food, utilities, and other necessary living expense. Can this be avoided? Sometimes, yes, but not always. I know many people who make upwards of $250,000 and still have credit card debt. Stop always blaming people for being stupid, for some its called living! It's annoying to read the same comments over and over again, realize that not all people buy so much crap that they are in debt or that people are too stupid to realize that cc use is not free money. Yes, there are tons of people out there that abuse the cards, but a lot of people are trying to get by. I know tons of hard working individuals that have to use their cc every month to balance out life.

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floraposte
December 16, 2008 7:56 PM
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@courtneywoah: I agree with you that people don't accrue credit card debt through being bad people. The problem is, though, that they're not \"balancing out\" anything by using the credit card to make ends meet--it means the household is taking a high-interest loan every month that it's increasingly unlikely to ever be able to pay back. If your monthly expenses require you to add to your balance every month just to make ends meet even without the encountering of a catastrophic event, as your scenario would seem to suggest, that's a life knowingly built on a ticking time bomb.

And the problem is that it's really hard to get off of it once you're on it, especially in this economy. Downsizing the house, unloading the cars, etc., are only effective if you can actually find people to buy the stuff and if you can do it without relocating so far you need to find a different job; I would also imagine the people in this situation have children, who are even more difficult to sell off.

Though I too am unclear on how somebody bringing in 250k a year can't make ends meet monthly unless they were overoptimistic--can you explain? Even a million-dollar house takes less than half of that in annual payments, and that wasn't requisite anywhere even at the height of the bubble; I'm having an even harder time seeing how the remaining $10k a month doesn't cover food, insurance, utilities, transportation, etc. even if we're talking four people. Is this perhaps a family that needs to rethink their commitment to private school for the kids?

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JustThatGuy3
December 16, 2008 8:14 PM
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@floraposte:


Well, one thing to remember: taxes. If you live in New York and make $250k/year, you're paying $100k+ in taxes, so that's 40%+ of your income right there.

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johnva
December 16, 2008 8:28 PM
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@JustThatGuy3: Yes, but that's still like 12.5k/month, even after taxes. You could easily pay down a ton of credit card debt on that, given that people manage to live on like 1k/month. The only thing that would make it hard is having an expensive house, etc but then that's an optional thing.

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Jim
December 16, 2008 7:53 PM
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@courtneywoah: The thing I'm a little tired of is people mistakenly believing that they are entitled to whatever they want, whenever they want it, from a wide selection of places. I'm not going to pile on, but you have a serious misconception of what people need \"to get by\" or \"make ends meet\". Nobody, NEEDS $250K per year. Most of us don't even really need what we've got.

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sven.kirk
December 16, 2008 7:42 PM
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@courtneywoah: Some need to use credit cards in order to survive
WHAT! If you need credit cards to survive, you are doing it wrong. Sure cost of living my go up, but if you cannot adjust accordingly, I will/do not feel sorry for you.
If you cannot afford your current lifestyle, with out needing a cc, you need a major change.

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SonicMan
December 16, 2008 9:00 PM
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@sven.kirk: It depends. If you develop a medical condition and need expensive meds. Its either run up the cards or Die. Personally, I would run up the debt.

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joellevand
December 18, 2008 7:36 PM
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@SonicMan: Yes, assuming that for some reason you don't work a full-time job that pays at least part of your health insurance. And honestly, I've worked too many crappy jobs in too many of the most broke cities in this country to buy the \"I can't get health insurance through any jobs anywhere ever\" excuse. That's just your entitlement showing.

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AnonymousFinger
December 16, 2008 7:28 PM
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@courtneywoah:


It's REALLY hard for me to feel sorry for anyone making $250K and having CC debt. I can see someone making $30k a year having trouble living within their means, but $250K? You are always defined by the decisions you make!

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AcceleratedDragon
December 16, 2008 7:27 PM
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@courtneywoah:

\"it's called living\"
I call bull@#$%.

Yes, a lot of cc debt includes medical bills not covered by their insurance. But most are over spenders.

1) high cost of food-myth
eating out $$$
eating prepared meals $$
eating low costs foods like beans, lentils, eggs and chicken ¢¢¢. It ain't fancy, but WILL come in under budget and well nourished.
2) utilities-myth
you don't NEED a cell phone \"but my job...\" if your job NEEDS a cell phone, your boss will provide one. IF self-employed, get a better job where you can afford a cell phone. saved $30-$60 month
cable/satellite bill get rid of it. you save $55 to $100 month.
3) get a less fancy car.
\"WAAAH, but I need a reliable car\"
I drove a 7 (later 11) year old honda civic for 4 years. I only had one \"major\" breakdown (CV joints) and only a few minor problems. (alternator belt breaking...)
You can find a reliable car cheap.

You can live within your means, but it's NOT easy.

\"but I work hard, can't I enjoy life a little and splurge once in a while?\"
Sure you can, but don't whine about credit card debt later m'kay?
There isn't anything in the Constitution (or the Bible) that entitles you to \"nice things\" if you work hard.

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joellevand
December 18, 2008 7:34 PM
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@AcceleratedDragon: omg, I love you.


I drove a 9 year old car until it was an 18 year old car. Paid $3000 for it when I got it. Did it look like a POS? Absolutely. Did it get me from point a to point b? Absolutely.


When I was broke--yes, $40K in the hole at 20 with no college degree or home to show for it--I pulled myself up by budgeting like a bitch. Baked my own bread (it's actually easy and flour is cheap) and salvaged seeds from produce to plant in the spring in pots in my little apt. in Baltimore. Hell, when I only had $30/wk to spend on groceries, I managed to feed myself and my cat.


Point being: it's doable. It's not pleasant, but it's doable. Did I have to give up on my dream of being a travel writer, even though I was very good at it and hired freelance at the time I went broke, and become a wage slave? Yup. But am I still broke? No. I have a car and health insurance and can (and do) write freelance on nights and weekends. Not living the dream, but I'm not broke and bitching about it either.


There is no excuse but entitlement issues.

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johnva
December 16, 2008 7:17 PM
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@courtneywoah: Well, if we regulate the credit cards much more heavily, then they likely won't be offered to as many people who use them to \"balance out life\" every month. Is that a better outcome? I'm not sure that it is. I would prefer we just strengthen the bankruptcy laws to make it more possible to get out from under crippling credit card debt (and student loan and medical debt, in my opinion).

That being said, while I understand that \"life happens\", someone is using their credit card monthly to get by is in an unsustainable situation. And I have zero sympathy for anyone who makes $250,000/year and can't get out from under credit card debt. I understand that it's hard, but they can sacrifice their standard of living for a while just like anyone else, by downsizing their house, delaying having kids, etc.

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Anonymous
December 16, 2008 7:11 PM
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There's a lot of self-righteousness here in this string. If you don't have a problem, good for you. But don't just cast everyone into a \"stupid bum\" category. Many things can happen to cause people to lean on credit cards. Again, if haven't had bouts with illness, death in the family, or other serious financial set backs, then don't preach. Consider yourself lucky.

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ogremustcrush
December 16, 2008 7:48 PM
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Just upped the limit on one of my cards. That should decrease my utilization ratio a bit. I pay my cards off in full every month anyway.

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lpranal
December 16, 2008 10:19 PM
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@ogremustcrush: Citibank doubled my limit twice this year. I guess I fall in the category of \"enough money to keep buying stuff, but not enough to ever pay off the card. I noticed this just as I was getting ready to pay off my balance in full.

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johnva
December 16, 2008 7:54 PM
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@ogremustcrush: Yeah, they keep upping my credit limits too (most recently, last month, Chase upped my limits by 50%). I think if you have good credit and don't carry balances they're probably still glad to have your business. It probably helps their books look better right now, which is probably as important to them when they're trying to survive in this environment as having really profitable accounts.

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Mary Marsala with Fries
December 16, 2008 8:15 PM
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Counselor hat on:

ALWAYS pay the mortgage FIRST, followed by the utilities, lease or payment on a car if you're unlucky enough to have one, followed by a reasonable BUDGETED amount for food, medicine, and school supplies.

THEN pay loans, then credit cards. CCs go dead last, because other than hurting your credit, harassing you, and after a looooonng time in collections possibly suing you (and garnishing you for FAR less than you owe, as long as you bother showing up in court), they can't hurt you -- but ONE missed mortgage payment can lose you your house! THE MORTGAGE ALWAYS COMES FIRST!

...Now if only one person was saying *that* for every one collections-agent lying to people about going to jail or losing their home over credit cards...

Counselor hat off.

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Dominic Son
December 16, 2008 8:19 PM
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What did you invest in?

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Dominic Son
December 16, 2008 8:20 PM
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@Dominic Son: It appears these blog comments need to be worked out.

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courtneywoah
December 16, 2008 8:30 PM
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JustThatGuy3 summed it up nicely: taxes. Most of the people I know that make crazy good money live in NY and pay a ton of it in taxes and a lot of it just to get to work by train.

Anyways, me and my wife and our son live off of a $70,000 salary and we barely get by. We have some credit card debt but not much. We get screwed in taxes though ($700 every two weeks), so when people hear about how much we live on they think weve got it made, when in fact we dont. We work hard and thats what got us here, but taxes, high cost of living, utilities (GAS, ELECTRICITY, INTERNET, etc) make it hard to stay ahead.

I guess I should have said earlier that you can make great money but still be relying on cc (to some extent) because everything is so damn expensive.

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AcceleratedDragon
December 16, 2008 9:05 PM
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@courtneywoah:

I here that all time time. \"it's so expensive to live in NYC/San Francisco\"
Is this Soviet Russia? Do you need the Komissar's permission to move to a cheaper area?
It's a free country, move to a cheaper area. You will probably get paid less, but you will keep more of your money.
You pay a premium to live in premium areas. You're not a bohemian teenager anymore, you got a wife and kids. Time to grow up and act responsibly.

Hey, I'll admit it, NYC offers so much more than my town. I enjoyed my visits. But I'm a realist. I can't afford to live there, apparently neither can you.

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floraposte
December 16, 2008 9:23 PM
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@AcceleratedDragon: The problem is that it'll take years to recoup the hit from a move in this economy even presuming you can manage to find a new job prior to the move while continuing with your old job. (I'm also not clear if courtneywoah was saying he himself is NYC-attached or not.)

I'll also differ from you and johnva on the child issue--I don't see it simply as an expensive luxury, and it can be really tough to find a job that'll bring in money that covers the cost of child care, so it can often be cheaper for one spouse to do child care instead of adding to income. (The taxes seem on a par with what most of us probably pay, though, so I don't think he's being disproportionately hit there.)

I do think that you can budget to keep yourself from relying on an increasing credit card balance at 70k, but that it's tough to do that in some areas of the country. However, I think that's a far cry from the claimed 250k.

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johnva
December 16, 2008 10:19 PM
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@floraposte: Child care can be expensive, definitely. And yeah, it might not be worth it for the second parent to work, depending on the cost and how much the parent's labor is worth in the job market. But it's also for a relatively limited number of years that a kid needs 24 hour care by a parent or other provider. After a certain age, they go to school and child care might only be needed for a much lesser number of hours per day, after school. Problems with that might come in once you start having more kids, separated over more years, but then again, you shouldn't have kids if you can't afford them.

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floraposte
December 17, 2008 12:54 AM
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@johnva: Though some people might also say you shouldn't have kids if you're not going to spend time with them. Not that I'm arguing for parents home over parents in the workforce or the other way around, just that there's dogma adhered to in different directions there, and I don't think either side has much beyond gut \"this feels true to me.\"

I think the problem often isn't the having of kids, it's the having of kids and the failure to cut back other lifestyle expenditures or to accept the modestness of the material goods that one can provide them with. Pick one: kids or electronics.

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johnva
December 16, 2008 8:53 PM
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@courtneywoah: That's still only $16,800 a year in taxes, which means you're taking home ~$4400+/month. That's not a HUGE amount, but it's enough that you shouldn't be having problems staying out of debt. And it's still a choice to live in a place with a high cost of living where the housing is expensive (as I'm sure that's a big part of your problem). Whichever of you doesn't work could also get another job (sorry if I'm misinterpreting you there). It's a luxury these days to be able to have a stay-at-home parent, just like it's a choice to have a child. Lots of people get by on far less, which is why I still think it's all about the lifestyle choices we make.

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yagisencho
December 16, 2008 8:35 PM
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Why are credit card companies allowed to jack interest rates up overnight?


Let's say I consistently pay off my credit every month. One month though, the mail is late or goes missing, and I end up being late on a payment. At their discretion, the credit card company can waive any late fee and leave my rate as-is. OR they can jack the rate up to 30%, ensuring that any balance I had on the card is now much higher and potentially more difficult for me to pay off. Compound that over time and you have situations like this one.


Instead of immediately increasing the rate, why not leave the rate alone (at first) but lower the credit limit? Credit card companies are much more likely to get their money back if they don't pile on the debt. They DO want to get their money back, right?

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TechnoDestructo
December 16, 2008 8:36 PM
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The real solution here is to dissolve the state of Delaware.

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chemmy
December 16, 2008 8:38 PM
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These stories baffle me... Sorta. I mean when the credit crunch started and the sky was falling and everything, I took a look at my finances and said to myself

\"Self.... why am I saving in a savings account with 3% interest on a good day and paying credit cards with interest between 5% and 14%?\"

So I cashed in some savings and paid off ALL of my credit cards (it was like 6K worth, maybe a little more)

Funny thing was that when I looked at that handy debt snowball spreadsheet Consumerist posted, it told me I could pay them all off by September 2010. But I paid them now. Yes, my savings hurt because of it... But I was paying out approx $1000 a month in CC bills anyway (payments, not paying off) so with them paid off, it's only 6 months to recoup that \"loss\"

Win.

I think people need to learn to be responsible for their actions. I've read of people on here screwing up and being in over their head in CC debt... and paying it off.

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courtneywoah
December 16, 2008 9:14 PM
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lol I dont live in NYC I never ever would

a few things to consider though, if your job tells you to move to NYC to keep that job, you move. If you can't afford to live in NYC (which most of my friends don't) you find a place not too far away (for some its CT)

@AcceleratedDragon: I shouldn't have to justify my beliefs, if you don't agree with them thats perfectly fine. You also shouldn't assume things about people (which is hard to do given that it's the internet). I am growing up (I won't claim to be grown up yet, im too young!) but just for the record: I do work (but as a server so it doesn't really count in my eyes, lol), also I didn't choose to have a kid my terminally ill sister chose for me to be the legal guardian of her son (see lifes a bitch sometimes!)

My situation is somewhat unique, but so many people have stories, ya know. That's why its hard to gauge who people really are, considering how little we know about one another.

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Jim
December 16, 2008 9:39 PM
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@courtneywoah: It isn't taxes that are making you broke. If you got a 5% tax cut would you be rich? All problems solved? 10%? Even if you got a 20% tax cut right now, you'd bring home an additional $70 per week. If that amount is keeping you poor, burying you further in your debt, I've got a snow shovel and 2 old aunts in New York with long driveways. I'll mail it to you.

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Jim
December 16, 2008 9:48 PM
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@Jim: Even in an uncommon situation.

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Scoobatz
December 16, 2008 9:31 PM
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Off topic, I guess, but can someone explain to me why some people spend so much time shopping around for the best price on something... only to stick it on their credit card and make minimum monthly payments? I'll never understand this.


These people feel good that they got the $1200 LCD TV for only $999, but ended up paying over $2000 in the long run.

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XianZhuXuande
December 16, 2008 10:06 PM
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A responsible person can pay their bills just fine without any credit cards.
If a person needs credit cards to pay bills that would be because they are spending more than they are bringing in.

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Anonymous
December 17, 2008 5:25 PM
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@Scoobatz: @Scoobatz: @XianZhuXuande:

Actually, if you are able to pay off the card in full every month (so you don't wind up paying the interest) while still putting money into savings and your retirement accounts, then, you can afford it. I used it as a way to carry over between paychecks so that I wouldn't spend the money I put in the bank. Once the second monthly paycheck would come in, I would pay the bill in full and not even touch the money I put in savings. This forced saving through automatic transfers allowed me to save 3 months in living expenses until I lost my job and had to pay COBRA, etc. (Those three months of expenses come in handy, in those situations, but I didn't think to include the cost of COBRA when I was considering what I would need, and it adds up quickly.)

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the_wiggle
December 17, 2008 4:12 AM
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@XianZhuXuande: until life happens. ever seen a typical bill for sudden major medical expenses? or sudden job loss?

some stuff really just does happen beyond what can be reasonably prepared for.

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chris_d
December 16, 2008 10:13 PM
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The banks are a big part of the problem. They've encouraged excessive borrowing to benefit their bottom line, and now everything's come crashing down. Some of the cardholder agreements are unconscionable. I've actually read a few over. Tight regulation is needed in my opinion. Of course the money keeps flowing to the top thanks to the douchebag congress.

But I have to say, consumers are just as much a part of the problem. How the hell do you run up $70K in credit card debt? I would guess that in the majority of cases by not being able to separate wants from needs. I can't believe the amount money people spend on f'n cell phones. Several hundred for a new one, then sign a two-year contract to buy unlimited minutes for $100, unlimited text messaging for $20, unlimited Internets for $30 and now they're paying $150 so they can update their f'n facebook from anywhere there's a signal. In 2 years you'll spend about $3500 total -- $7000 in 4 when you get the new \"must-have\" phone and re-sign the contract.

And then at home we gotta have digital cable with 300 channels for $100+ per month, $25 for DVR, and super cable internets for $60, oh plus movie channels for $15. And throw in cable VOIP which works about 50% of the time for good measure and $30. There's another $2760 per year; $11,000 over 4.

Oh and gotta have a new car. Once it's 3 years old it hurts our image. We trade before we've even got half the payments made on our old one. Which means the registration and insurance are through the roof as well. Living close to work or using mass transit is for losers. It's gotta be an SUV, so it was costing something like $9,000 a year in fuel before the recent oil price collapse.

I haven't even gotten to the luxury apartment or the fancy house...

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kwsventures
December 16, 2008 10:14 PM
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People need credit cards just to survive? What? Imagine a world with no credit cards. Cash only. Are you telling me we would have millions of people living in cardboard boxes under the freeway overpass? For some reason, I don't believe it. People would have to live within there means. A novel idea, I know. I read a study that people send about 20% more when they pay with plastic. It appears paying with cash sobers up quite a few folks.

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johnva
December 16, 2008 10:38 PM
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@kwsventures: \"Living within your means\" is not always a great thing. Some people don't really HAVE much in the way of \"means\". I think that credit cards and other forms of consumer credit in some ways \"cover up\" the horrible economic inequality in this country. If people didn't have the option of credit, we might have to actually address some of these problems like the fact that middle class people increasingly can't afford college for their kids, etc. But yes, I do believe that more people would be living in cardboard boxes, etc if it weren't for credit. Credit is a very useful tool...it's only problematic when people overdo it.

Also, as we've discussed on Consumerist before, some of those \"studies\" about credit cards vs. cash are problematic. Many aren't very realistically designed or abuse statistics to draw a certain conclusion. And it's not necessarily true that spending less is a good thing. Sometimes people NEED to spend on something, and don't have the means to do it RIGHT NOW. If you needed a medical procedure and didn't have the cash for it, it wouldn't necessarily be a good thing that your spending dropped because you delayed it.

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chemmy
December 16, 2008 11:58 PM
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I live in NYC and have no problems paying my bills lol and I'm now CC debt free too. Yes it's expensive... but you deal.

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Anonymous
December 17, 2008 3:16 AM
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Credit card reform is insane. How about this, stop buying items that you can not afford. I guess I am supposed to feel sorry for someone that loads up a credit card with debt. What happened to personal responsibility? Go away. I will toss them a quarter when they are homeless beating a bucket in the streets.

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RamV10: The Axeman Returneth
December 17, 2008 4:00 PM
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I would have liked to vote for \"No. You lie in the bed you make\"

Why didn't the guy in the story just reject the rate increase? He pays off the balance at the old rate, gets a new card. No fuss, no muss.

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Anonymous
December 17, 2008 4:52 PM
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I have a quick question (and I don't want to read the entire thread)... [I need some additional financial education...]

How to I figure out what the interest is on my existing balance? I recently called my credit card company and had them lower my interest rate to 9.5% from 12+%, but I'm not sure if that is the rate for the existing debt or only new debt.

I'm close to 7K in credit card debt, and I have student loans as well. (I'm not so worried about the student loans.) I transferred about half of it to a card where I don't have to pay interest on balance transfers for one year. (I didn't realize those existed any more!) I will make payments on both this year. Still, the interest on the 3.5K left in debt is still much more than I want to pay in a month. Cable wouldn't be that much more expensive than the interest, and I haven't had cable for years because it is too expensive.

FWIW- Most of the time (certainly not always) I consider myself to be a conservative spender. Most of the debt is related to losing my job last year, the related move to a cheaper apartment, the costs of storage supplies for the tiny place, prescription drugs, counseling appointments that weren't covered by insurance, and basic living expenses that were difficult to pay while I was on COBRA. Two years ago, I paid off my credit card every month, only carried student loan debt, and had saved about three months worth of living expenses.

70K in debt absolutely blows my mind, and I can never imagine carrying that much debt, but we don't know all of the circumstances for this guy. It said he went to his Dad's funeral; he could have been paying some of his medical costs as well, and those can add up quickly. In addition to raising the interest to an unsustainable amount, they could have also increased the percentage of the bill required for minimum payment. Why he didn't call the company and try to negotiate before it got this far out of hand or find a loan instead of using his credit card and letting it get this bad in the first place, I have no clue.

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drunken marmot
December 17, 2008 5:11 PM
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I would really like to see credit card reform. I have one credit card with a balance of a few thousand dollars, due to medical debt. I'm a middle-aged woman receiving Social security disability after working for years. My husband and I live in a dumpy apartment because we KNEW we couldn't afford a house and the lifestyle that goes with all that.
I would appreciate an interest rate deduction. I accrued those bills and I'm willing to take responsibility for them, but a little help would be nice.
Sometimes I feel as though I'm being punished for being responsible and NOT buying stuff we couldn't afford.

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Anonymous
December 18, 2008 4:02 AM
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@drunken marmot: By all means, if you have paid most of your bills on time and your credit is good, you should absolutely call your credit card company and ask to have your interest lower. They would much rather have a paying customer at a lower interest rate than never get paid at a higher rate. Use that to your advantage. I was able to lower mine 3 percentage points by calling. I know what it is like to have unpaid medical expenses. Best of luck to you; I hope it all works out!

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RogueWarrior65
December 18, 2008 12:36 AM
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I have one personal rule when it comes to credit cards. I pay the thing off EVERY month. Given the near-loan-shark interest rates, it's like throwing hundred dollar bills into the woodstove. Don't get me wrong here. I've several times paid ten to twenty thousand in one shot (it's a business card) but if the merde hits the ventelateur only then do I use credit.

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u1itn0w2day
December 18, 2008 7:08 AM
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Yeap,they can regulate the credit card issuers just like the SEC regulated Madoff .


I understand these banks are taking A risk on an unsecured loan/credit card even using the word 'risk' to justify their fees,penalties and just plain old greed and price gouging .But DUH,WTF do they the 'risk' becomes when you raise someone's rate and increase minimum payments .

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nepagutters
December 20, 2008 5:19 AM
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Sounds like this guy was able to swing the 1k but adding a extra $1000 bucks to the monthly bill was a bit much. Again we need more details to be sure.

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