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They Did Give Me Credit
These are tough economic times for most of us. People have lost their jobs, or some had to take salary cut and/or lose some benefits to keep the job they so sorely need.
The credit card companies love this turmoil.
There is a misconception among many that these companies love customers who pay their bill in full, on time, every month. These people see themselves as the bread and butter for the companies, for the companies get a percentage of the amount of the charge.
The credit card companies hate these people because they really don't make the real money off them.
The credit card industry makes a 30 billion dollar profit every year. That's right: 30 Billion.
They make their money off people with average or poor credit, and/or the ones who fell on hard times because of job loss, whom, because they lacked the income, had to pay their bills with credit.
Now here are the people the credit card companies love, for they make a fortune on them. They call them the "revolvers".
Revolving credit is a credit line that does not need to be paid off all at once. For most credit card companies, you make payments of 4% of the credit balance. You then pay interest on the balance left for the privilege on making these monthly payments.
Now the companies are making some money, but they can make more.
And they make it with charges they call fees.
I mentioned earlier how this industry makes a 30 billion dollar yearly profit. Out of this 30 billion, 40%, or roughly 12 billion, is made with FEES.
Now they are making the obscene money off the broken backs of some unfortunate people.
I am going to explain how this works the best way I know how: by example. This is something that actually happened to a person I know. I have changed all names for obvious reasons.
Steve has been a customer with the Gorging Credit Card Company for about ten years. His credit line is 10,000 dollars; which he rarely uses, but if he does, he never goes over 3,000. This is a good way to keep his credit rating high. He pays more than the minimum, and he has never been late.
Steve is married with two children. He has been employed with the same company for 12 years. His wife, Debbie, works part time. His house has only 3 more years of payments. The two cars are completely his. He has some savings. He looks like he is in pretty good shape.
Until his company decided to move overseas. 200 people, including Steve, lose their job.
Steve did not get a severance deal. He did get unemployment insurance from the state, but the maximum benefit was only 35% of his gross pay of his former job. This benefit would be paid for a maximum of 26 weeks.
Luckily, two years ago, he signed up for credit insurance. This will make his minimum monthly payments for whole year.
He calls up the credit card company to file a claim, but was told his occupation was not covered under this plan.
Steve apparently did not read the disclosure well enough.
This, of course, would not cover his expenses. So Steve had to tap into his savings.
6 months go by, and Steve has no job. The unemployment has run out, and now his mother-in-law has become ill. Debbie, her only child, had to quit her job to take care of her mother.
Now, Steve has to use his credit to get through this tough time. He asked Gorged to raise his credit line. Gorged raised his credit to 15,00o dollars because he was such a valued customer. His balance was only 1,500, so that left 13,500 of credit.
As the months when on, Steve found another job, but only at 50% of the income of his former employer. His credit balance was at 14,900. He now had to make a minimum payment of 596. Luckily, his APR on this account was only 5.3%., lower than the rate on his home mortgage.
Tragically, his mother-in-law succumbed to her illness. His wife was paralyzed with grief.
In this time of sorrow, Steve missed his first payment ever.
He didn't realize he missed it until he got his statement.
The bill shocked him back into that reality.
Because he missed that payment, the company charges him a "late fee" of $45 dollars. This and the interest set his at account at $15,010. Now they charge him an "over -the -limit fee" of $45 dollars. His total is now $15,055.
That was not the worst of it.
His account is now considered "default", which means they can now jack the interest rate up 29.99%. It doesn't matter that Steve was a loyal and diligent customer in the past; they just want the means to be in his wallet forever.
It gets even worse.
Knowing that the account could spiral out of control; Steve decided to pay it off with the one thing he had in abundance.
The equity in his house.
So, he decides to get a home equity loan. He gets it at the same bank that holds his mortgage. He files the the paperwork, and he is approved in a day for a loan of $20,000.
The bank charged an APR of 13.9%.
Now, his rate of his first mortgage was a fixed 5.6%. He has excellent credit with this bank, so why do they charge him such a high rate for the second one?
This little insidious loophole is what creditors call "Universal Default."
Universal default is the practice of charging a high interest rate for credit because the borrower has a bad history with ANOTHER creditor.
In other words, if you did it to them, you might do the same thing to us.
So, Steve had no choice but to take it. The loan interest rate was still 16 points lower than his credit card interest rate, and with it, he pays off the Gorged Credit Company fully, and closes his account.
It gets better for Steve. He finds a great job with much more money and eventually he pays off his debts.
He paid much more back than he borrowed.
The story of Steve is so common today. Hard working people who try to make ends meet are being taken advantage of their tough situation.
For some of these people, it gets so bad they actually only have one alternative: bankruptcy.
Bankruptcy is a legal procedure in which an insolvent debtor has his assets liquidated to pay of his debts. The debtor is then is free from any further liability, or, the court and the creditors agree with the plan of the debtor to repay his debts.
It used to be that simple, but creditors didn't like the fact that people could avoid paying back the money the companies so coveted.
So, they lobbied to have the law changed.
April 20, 2005. they got their wish.
The bill is rather complicated, and I am not a lawyer. The gist of it is that now you must pay back your debts if it is found you have MEANS to do so. So you might not be able to file.
And by means. it is defined by your monthly income. You basically might pay more or less depending on the state you live in.
Also, you must take a credit counseling course within 6 months of filing, AND, you must take a financial management course before your debts can be discharged.
Sounds like a lot of work. That is the intent, to have people not file.
So the creditors can get more money either way.
For myself, I had some problems with my debts. I had a couple of credit card accounts that got of hand, and I ending up settling with them. It was better than Bankruptcy.
The funny thing is, these companies want me back.
They did give me credit, I messed up, but yet they still want to extend it to me again.
This is because they considered me high risk, and high risk means high APR, and more fees.
More money to take exotic vacations and drive fancy cars.
How many of you are/were in financial crisis? Was it because of job loss, medical bills, issues with your home, or maybe a combination of other factors. How did you feel? What did you do about it?
I know, for me, I was at first very anxious. Am I going to pay for the rest of my life? Is this going to effect job prospects? Do women look at me differently because of my finances?
Yes and no to all the questions, depending on who answers.
It is only money. Having it does not make one happy and one can be happy without it.
Well, I rather take my chance at happiness on the beaches of Waikiki. How about you?