Interesting piece in USA Today on declining credit card use:
Credit card usage is slowing. Revolving credit — largely made up of credit card debt — fell by nearly 20% in November, the largest drop on record, according to the Federal Reserve, reflecting less borrowing by consumers and banks’ tighter lending standards. Through October, the number of new credit card accounts was down 46% from the same period in 2008, according to Equifax.
But abandoning credit cards is a much more radical step than using them less. Consumers who don’t own a credit card often have a hard time renting a car. Some hotels won’t book rooms to travelers who want to pay with a debit card or cash. Those that accept debit cards may place a hold on several hundred dollars in the customer’s bank account, which could cause checks to bounce. And many consumer experts say that responsible use of credit cards is one of the most effective ways to build a good credit record.
It will be interesting to see what the long term implications of this will be, because I sense a lot of people now run with the baseline perception that banks and credit card companies exist only to screw their customers.
Woodbuster
I actually learned something on CNN this morning (I know – imagine that!). The new regulations on credit cards are going to require that there be a very prominent, bold graph showing how long it will take to pay off the amount on a credit card, as well as the totally outrageous amount you will end up paying if you only do the minimum.
I suspect this will do more to lower the use of credit cards than anything else they ever did.
WereBear
I actually had my bank tell me (this weekend) that they are battling this perception, and they were indignant because they are actually one of the good guys.
And, based on my experience, they are. Bank of America came in for some serious bashing, which I joined in on.
Linda Featheringill
Credit cards are harvesting machines – garnering money from the many and dumping it into the hands of the few.
I know that some folks actually need a credit card to get around in the world but you could probably lead a very full life with only one credit card. And then you could keep the theft down to a minimum.
And yes, credit cards exist in order to take money from you.
Unabogie
For the record, I have not had a credit card for the last 15 years. I live debt free (now that includes my mortgage as well) and it’s a complete myth that it makes life hard.
It makes life unbelievably easy.
So you need a deposit when you rent a car? Ok, but then I have more money in my account because I’m not paying all of my income on interest charges.
NobodySpecial
Brian J
I’ve noticed many more people are carrying about big bills rather than using cards. It’s a pain if change is needed, but I get it.
On the whole, I guess it’s better for people who know they aren’t going to be responsible to not use the cards, at least for the time being. Of course, you’d hope that they’d eventually start to use the cards for something, just to build up credit, but that’s not always the case. I usually tell people to use a cash back card or something like it to buy gas or something else that you absolutely need and then pay it off each month as a way to build credit. That’s partly what I did.
I’ve heard that one of the best ways to establish good credit is to get a car loan and then pay it each month. I’m not sure how easy it is to do that if you don’t use credit cards that much, but perhaps there are ways that good credit can be established that most people can use, even if it takes a little longer.
MR Bill
I’ve lived without a credit card for perhaps ten years now. I lead a pretty simple life and don’t travel a lot. Renting a car was a pain (atm card plus paystubs and some current account, in my case, cell phone), but it can be done.
One has to plan ahead.
I’ve been thinking of the Visa commercail where the cards flow (think it was a sandwich shop) to the tune of Raymond Scott’s Powerhouse (you know, the factory/robot music from old Warner. Bros. cartoons)… If I know anything about old cartoons, being part of the machine, in the factory, or at the hands of a robot, was generally a bad thing.
And I’m with Elizabeth Warren that the credit card industry along with banking/finance needs to be regulated to be honest and not a perverse and destructive force for the consumer.
adolphus
I don’t have time to read the whole article right now and only dipped my toes in, but I was unclear if the decline is due to people lowering the number of credit cards they own or people eschewing credit cards entirely.
People without any credit cards might run into the problems listed, but my sense is that the decline is in the number of cards people have. My parents have a host of credit cards including one for every department store at the mall and every major gas station in town. Most of my friends have one, maybe two cards.
jibeaux
I have one that is for emergencies only (and stuff like car and hotel rentals), but it has a balance on it from when I was not so attuned to my budgeting. It’s not too terribly bad, and I am on track with auto pay to get it paid off this year, if there aren’t any emergencies. I am glad to just have the one, I have at various times had more than one. Once I do, I’m going to get rid of it and open a card with my credit union. They are conservative about credit limits, which is good, and they don’t mess around with promotional APRs or hiking up your APR, either, they have basically just stuck to 9% forever. And, incredibly, they have no late fees if you miss a payment. Once I do that, I will be doing all financial transactions with my local, member-owned credit union.
General Winfield Stuck
While precipitous drops like this, or abandonment can cause some pretty tough shock waves thru an anemic economy. This is what I meant in the earlier thread about the economy having basic structural problems and needing time to restructure itself. And no more so on how we use credit in this country.
Meaning that no economy can prosper long term based on credit spending to a large degree, which is what we have had for some time now. That goes to individuals relying on credit way too much to fuel a consumer driven economy at 2/3’s of growth, and the government as well. It is common sense that this has to stop, or at least regress to sane levels.
Brian J
@General Winfield Stuck:
But what if people are refusing to use the cards as part of a strategy to dig themselves out of debt? At some point, individual debts have to be paid off, even if spending is needed to keep the economy going.
binky
re: jibeaux’s comment, I keep a couple (both with zero balance) for emergencies, and rarely use them. Recently I attempted to and found that they had been deactivated for lack of use by the issuer.
SpotWeld
My guess is that it will be a simple action of rebranding. Credit card comapanies will become masters of selling you the same sh!t sanwhich with a new label on it.
The pendulum will swing back to consumer favorable terms, and bt then the economy will have cycled back up and spending and debt will peak…. again
jimBOB
Jeez, where does all this animus for a modern convenience come from?
If you pay off your full amount every month, you pay no interest, and the card eliminates the need to carry much cash. Merchants end up paying a cut to the credit card company, but that’s not something you’d get back if you paid cash. Plus there’s speed-pay at the pharmacy, and try buying anything online without a card.
When I factor in my time to got to banks/ATM’s and pull out cash, and when I consider how useful it is to have most purchases listed on a single statement, there’s no way I would stop using the card. Remember, there are no fees if you pay off the full amount.
I understand hating the banks. But a credit card is only a money-suck if you let it be one.
General Winfield Stuck
@Brian J:
there will be pain for abandoning old ways suddenly, but it is also insane to borrow to pay off debt. Might be good for job growth on the debt collector front, however. And lots more bankruptcies, that now those owing will have to pay what they can instead of complete debt elimination with chap. 7.
There is no easy way out of the race to debtors prison the country has been and is now on. Including the government./
Comrade Mary
I’ve been shredding old paperwork this week, but I’ve kept aside a few old credit card statements that show just how incredibly stupid I used to be about credit. I never paid off any card down to 0, even though I could have easily done so with the money I was making even then. Some months, I would make a payment of a few hundred dollars, but would have charged even more than that. I don’t have the masochism to sit down and figure out how much extra I paid in interest until I finally stopped this nonsense and went on a financial overhaul a few years ago.
My one active card is now paid off in full each and every month, come hell or high water. I’ve managed to put away a decent emergency fund, too. It’s tougher when things get more expensive and when you earn less, but most people can make some headway. But I think that if I had just woken up to my stupidity this year, I’d be much further behind. My bank used to mail me a flurry of offers to shift my interest rate down to 2% for months at a time. Taking advantage of these offers got me paying down my debt much faster.
I haven’t gotten one of those mailings for over a year.
BenA
I’ve cut out credit cards entirely… over the last six months or so. Part of it was my doing, part of it was the credit card companies freaking out and acting like demented children having a tantrum when the credit card legislation went through.
The only time I use one now is while travelling…
some guy
That perception might have something to do with, uh, the reality of banks and credit card companies screwing their customers.
adolphus
Okay, so I went back and read the article. (Slow day at work)
I was struck by the people in the article who swore off credit cards all seemed to already be people of means. One couple sold their business and rental property to spend a year traveling on their cash and debit cards and another went into aggressive debt reduction mode which included, among other things, borrowing money from a relative.
I suspect this is one of those cases where it costs more to be poor. I respect those of you who live without credit cards, but at my current underemployed salary level I am living paycheck to paycheck with no property to sell and no relatives to borrow from. What I do have is 20 years of excellent credit that has given me a credit limit (on one card) that I could live off for a year if needed. I am one broken leg or one car accident away from total destitution and if it takes a credit card to get me out, so be it. But then maybe I am too confident about the future.
Zifnab
I’ve never owned a credit card and I see absolutely no reason to get one. My debit card gives me a few problems and those are enough. But with my accounts linked up for overdraft protection and a cushy reserve in my savings account, I live a very happy existence without kicking VISA a 2% vig or passing American Express a couple hundred dollars a year for the right to spend my own money.
aimai
The flip side of easy credit has always been that companies themselves saw late fees and extended credit as ways of increasing their bottom line without actually selling anything. What’s the point of a “store card” except to get you to spend more money in that store without grasping the full cost, as you would with cash or to reap an extra harvest in late fees?
I think that people have become slightly more savvy about cards in general, especially store brand credit cards. TJMaxx pushes a store credit card on every purchaser with a come on teaser offering of 20 percent off the first payment. That is, you show up at the counter with your 30 dollar purchase and they offer you 20 percent off that in exchange for signing you up for their credit card. Presumably it used to work–people get amazingly excited about a 20 percent discount until they actually do the math and the average purchase at TJMaxx, since its already a discount store, has to be pretty low.
During the height of the credit crunch/recession fever a year or so ago I saw more and more women refuse the offer at the cash register, often with a comment that it didn’t make financial sense for them. That the “discount” wasn’t worth it. That the credit card made it hard for them to keep track of payments. That they’d end up paying more in late fees than they “saved” in deals and bargains and come ons.
I can’t say if that new found insight into the dangers of easy credit has endured. TJ Maxx still pushes the cards on everyone.
aimai
Maude
@Comrade Mary: That’s how we learn. I wasn’t Einstein when I was younger. It’s the ones who don’t figure it out that will always be in trouble.
When the credit card companies were allowed to move to the state with the highest interest rates, that’s when the games took off. Before that, the the interest rate was set by the state that the credit card holder lived in.
Catsy
I’ve battled all my life with poor financial habits–it’s taken until well into my 30’s to really get a firm handle on it, and financial management software is essential for me. Seeing my parents and friends rack up tens of thousands of dollars in credit debt was at least successful in scaring me away from credit cards, which I’m certain is the reason why I am not deep in debt.
Everything noted so far about the obstacles for non-credit card users is true, and I resent the fuck out of it whenever I bump into it. In order to rent a vehicle or a room at anything fancier than a Holiday Inn, you need either a card or a prohibitively high deposit. There are places you simply can’t do business without one, and I don’t give them my business. It is a major problem with the way our society is structured, it creates all the wrong incentives by practically mandating card ownership for people who really shouldn’t have one, and it’s one of the things that needs to change–and may, if things keep going the way they are.
Fortunately I do not often find myself needing to rent a vehicle or a hotel room, so the times where I bump into this wall are few and far between. But you should see the looks I get when I respond that I don’t own any credit cards! You’d think I’d just told them that I don’t own a toothbrush.
Bob In Pacifica
*Screw their customers and steal their money.
Catsy
@aimai: I get the same thing from Target every time I go there. It’s a standard part of their script at the register–about as automatic as the mandatory upselling questions at fast food restaurants, and almost as annoying.
Zifnab
@adolphus:
That’s the problem, though. It’s credit, but it’s not fair credit. What you’re suggesting is one step above going to a loan shark for ten grand and saying, “I can get by with a few smashed toes and broken knees”.
Trying to live off credit card debit without paying it back at the end of the month is insane. Cards can charge interest in the 10% to 60% of the balance. And that’s before any ridiculous fees or additional charges they slap on the top.
You’re absolutely right. It is more expensive to be poor. That’s why cards are such a scam and why richer people have begun avoiding them after a quick run through the math.
Ultimately, you’re gearing up for the debt trap. Get in trouble (often through no fault of your own), tap the credit card for leverage, and end up paying back twice what you originally owed.
Honestly, the only real way I’ve ever seen a poor guy get out of his credit card debts is by telling the company you don’t give a fuck about your credit score and demanding they reduce your balance or risk not getting back anything. He racked up about $20k in college debt on various cards and has been renegotiating the debt back down ever since.
But the way credit cards are structured now, your credit score is trivial in comparison to the sums they ask for in return. Fuck’m.
Unabogie
@adolphus:
It really isn’t about means. I started this in my twenties when I was hardly making anything, working part time. I simply starting operating under the concept of saving for the things I needed before buying them, and using the envelope budgeting system to put aside money to pay my bills before they came due. I went from always being broke to having a nice emergency fund in a few months.
It really works, and there is no reason to pay interest on a credit card to live your life.
Brian J
@General Winfield Stuck:
I guess it depends on how big of a hole they are in. Assuming you aren’t being assaulted from every angle with expenses, it should be relatively easy to pay off debt if it isn’t too high. I know that there are extreme cases of people with, say, $40,000 in debt, but for the person who doesn’t have much money yet has a relatively small balance on credit of, say, $4,000, isn’t it better to stop using the cards as much, if not entirely, work on paying off the debts, and just use cash? In the end, if they are on a more secure financial ground, isn’t that a good thing?
Perhaps I am missing your point. I know you suggested bankruptcy is an option, but who declares bankruptcy unless his debts are absolutely massive? What judge approves it unless that is the case? As I suggested above, I think most people fall into the category of having debts that aren’t small but aren’t enormous enough so that a little effort and some reduced spending can leave them more financially sound a year or so later.
jenniebee
And many consumer experts say that responsible use of credit cards is one of the most effective ways to build a good credit record.
I can vouch for that. Nearly two decades of living within my means without touching credit cards kept my credit rating hovering at around 600, which led to usurial rates on my car loan and an inability to get a mortgage. I bit the bullet and signed up for a rip-you-off credit card, which is the most irresponsible thing I’ve done financially in my entire life, and my FICO skyrockets in a matter of months. It’s insane.
Incertus
I went through bankruptcy last year, so I don’t have many credit options. I got a credit card a couple of months ago basically to rebuild my credit score, and because they didn’t try to hammer me on the terms, and I carry a small balance on it month-to-month because that helps build the score as well. But I’m not giving the credit card company more than a buck or two a month, so I figure it’s an even trade.
But I’ve also got a cash savings now and I’m much better at living within my means too, so I learned the necessary lessons.
Mnemosyne
@jimBOB:
Your card must not be from Bank of America or Citibank, both of which are now charging fees for not using your card or paying it off in full. If you do have one of those cards, you may want to check your statements, because the fees were implemented last month.
Dan B
@jenniebee: Back in my college days, a friend, who worked at Capital One at the time, told me that I wasn’t helping my credit score by paying the balance in full each month, and that people in his office referred to people like me as “freeloaders.” Basically, the whole credit system is a fucking joke on us.
Punchy
If one needs this very easy math calc spelled out and bolded on a sheet a paper for them by a bank, methinks that person shouldn’t be allowed to own said credit card, on grounds that they’re a clueless dumbass.
jenniebee
@Dan B @Incertus:
I carry a small balance on it month-to-month because that helps build the score as well
Is this true? I’ve been charging about $50 a month and paying it in full because I thought that was the best way to build the score. The only reason I have this damned thing is to build my score, what’s the best strategy for that?
me
@Mnemosyne: I have a BoA card I pay off every month. I don’t keep cards with annual fees, hear me BoA.
Brian J
@Comrade Mary:
As you said, most people can make some headway. It’s easier the earlier you start, which is why I am so astonished when people don’t seem to have the slightest care in the world about not contributing to a 401K or anything similar. The compounding alone, even from small amounts, makes a huge difference.
I went into a little bit of debt around Christmas time, but I’m almost done paying it off. Even with a car loan and student loans and other stuff like that, I must have good credit, because I get, at minimum, four balance transfer offers per month from Citibank. Nice to know, I guess.
Comrade Mary
@Punchy: Hey, I freely confess to having been a clueless dumbass. I got better [/python], but it’s really too easy for otherwise intelligent people to go math-blind and make excuses. I would have LOVED to have my nose rubbed in my own stupidity years ago with a series of those graphs. (My ex-, who amassed triple the debt I did despite working in finance, could have used the lesson, too.)
Ailuridae
@Mnemosyne:
With the full understanding that not everywhere is Chicago and there might be some geographical limitations I frankly find it problematic that there would be people on a progressive blog who haven’t moved their easily movable banking business away from Bank of America, Citi, etc.
http://moveyourmoney.info/
I moved banks about three years ago when I realized how horrible WaMu’s business practices were. They didn’t affect me personally but they were both irresponsible and usurous. My current banks is still large, has banks open 7 days a week and has never taken a loan off its books and only engages in responsible lending.
Brian J
@jenniebee:
I might be botching what I read, but I seem to remember someone suggesting that you charge something, pay the minimum but not the entire balance for a month or two, and then start paying off the entire balance. That seems oddly counter-intuitive, if not just stupid, but I’ve read a lot of these books. But don’t hold me to it.
Regardless, paying off your balance each month isn’t a bad move, although installment payments on loans is probably better.
Ash Can
Completely OT, but this story broke during the Super Bowl hoopla last night and was probably missed by many, and it’s of great interest to Illinoisans and political junkies everywhere: Scott Lee Cohen has dropped out of the Lieutenant Governor’s race.
I admit I have mixed feelings about it. On the one hand, it’s not his fault that he won the election, it’s his opponents’ fault and the media’s fault for not taking his candidacy seriously enough to publicize his many drawbacks during the campaign. Also, I’m sure the IL Dems leaned on him plenty hard to drop out, and that’s not an attractive prospect no matter which way you look at it.
On the other hand, though, it’s a fucking HUGE relief, and if Quinn’s running mate turns out to be Art Turner after all, it’ll be a pretty strong ticket.
fortygeek
@jimBOB: Mnemosyne beat me to it. Read up on the big banks charging for not using the card.
Dan B
@jenniebee: Phenomenal question. If I knew I would tell you but, well, I’ve tried it both ways (paid in full and maintaining a balance) and I have good, not great, credit score.
twiffer
@jimBOB: you can do all that with a debit card. and since a debit card is actually accessing your checking account, you don’t have to pay anything back.
Mnemosyne
@Ailuridae:
G has had his BofA and Citibank cards for close to 20 years, which means he has a killer credit score. Canceling those cards and changing to different ones would mean taking a major hit to his credit score. Unfortunately, sometimes one has to choose between practicality and idealism.
(I don’t have any credit cards at all, bank with a regional bank and will probably get a credit card through my credit union when I get around to one, so I’m doing all of the good lefty things for both of us.)
liberty60
Taking the Big Picture view…
The trend over the last 20 years has been to shift more and more risk to the consumer.
Without the protection of regulation, the transaction between consumer and financer becomes an arms-length caveat emptor relationship.
Which, even if you feel thats a good thing, has some interesting results. When people begin to realize they are alone in the marketplace jungle, and can’t trust in the sellers, they begin to become wary, and assume a defensive crouch.
Meaning they buy less, keep a higher savings reserve, and avoid unusual or innovative products or unknown partners.
What this means in the long run is a slower rate of growth and a dampening of the economy.
Ironically, dereguation was sold to us as a way to spur innovative and new and novel finacial instruments and encourage risk-taking; in the long run, it has done the opposite.
Brian J
@Mnemosyne:
Isn’t the solution to keep the old cards but not to use them at all or to use them very sparingly but get a new card that has better terms and then use that?
FoxinSocks
I have three credit cards with large balances, mostly from medical bills that weren’t covered by my insurance and some food and utility bills from when I was unemployed.
Last year, every single card jacked up their interest, in one case to 27%, and cut my limit. To me, that’s declaring war. I haven’t used a credit card since then (including when I had to rent a car) and am even trying to wean myself off of using my debit card except when I absolutely have to. Feels pretty good, so far.
Jay C
@Catsy:
And most likely, some banking-industry-whore Congressional Republican will come up with the “solution” to the “credit crisis” by pushing for a law mandating exactly that. After all, if there’s a “mandate” for health insurance, why not one for
crippling debtpersonal credit?Punchy
This isn’t rocket science. Charge 2 meals or a hubcap or a pet rat to your card once in a while, pay off the $13 and change at the end of the month, and you avoid such charges. And interest fees. And you build credit.
I dont understand the strong anti-CC company undercurrent on this thread.
Lurker
@Dan B:
I think your friend was wrong about harming one’s credit score by paying in full.
I only have one credit card right now through Citibank. Years ago, I was forgetful about the due dates on the payments and got dinged with late fees, even though I would pay in full. So, I stopped using the card altogether and switched to my debit card.
A year later, I was between jobs, and my apartment complex raised its rent by $300/month. I wanted to apply for an apartment that had lower rent. I had no proof of income, since I was unemployed. The landlord checked my credit score, and I was turned down because I had “no” credit. Not “bad” credit — “no” credit.
After that, I tried to build a credit history. I started using my one credit card for every normal expense like groceries and gas. I made sure to pay it off on time and in full at the end of the month.
Last week I started thinking about getting a better card. There’s a cashback rewards Visa from the Pentagon Federal Credit Union that I would like to get, but I read that PenFed is *extremely* cautious about extending credit to new customers. I wanted to know if I had a chance in hell of getting this card, so yesterday I bought my FICO score from Equifax.
I have no mortgage history, no car loan history, and no other cards. This 11-year-old Citibank card is my *only* card and my *only* source for a credit history. For the past six years I have always paid in full.
My FICO score was 781 out of a maximum of 850. The report did show a balance on the card, but I guess Citibank reported what I owed for the previous month before I submitted payment.
jeffreyw
I keep 2 cards, a Discover and a Visa issued by my local credit union. The Discover I’ve had for 15 years or so, and has been paid off in full every month in that time save once. The Visa I treat as a debit card, I transfer funds to it from another account as they show in the account summaries I access several times a week.
I will cut up the Discover if they eliminate rebates for certain purchases such as gas and groceries, but until then I will use it for nearly every purchase. Cash is for vending machines.
Charity
All credit cards are 0% if you pay the balance off each month. Which I do. I have a personal Amazon card from Chase, with which I rack up points for free stuff or cash. Our family card is also paid off monthly, and we get a nice check at the end of the year with cashback. I’d rather get a little cash at the end of the year than pay fees!
Jamey
Okay, what’s the over/under that someone high up in the GOP–Cantor, anybody?–advances the idea that we repeal the parts of Gramm-Rudman that rescinded the credit card interest tax deduction?
I mean, if Ryan’s budget can gain support at the highest levels of the GOP brain trust …
Brian J
@Punchy:
I don’t, either. I understand how people don’t like the fact that they can prey on people who can least afford it, but that doesn’t mean they are bad for everyone in all circumstances. They just need to be used but not abused.
The Republic of Stupidity
@Punchy:
I kinda do, and also think some of the misery is self-inflicted.
I got into trouble w/ credit cards twenty ears ago and learned my lesson. I NEVER carry balances and my FICO scores be damned, I ain’t gonna do it. And I still get letters and calls from collection agencies trying to make money off debts that have been off my credit report for years. Old debts seem to float in some sort of financial purgatory where they never really die.
At the time I got into trouble (severe health issues that lasted 4 to 5 yrs…) the banks in question managed to slap enough interest on the balances in question to in one case, turn a $3K debt into at least $12-13K before writing it off, and that bank is one that is STILL, 18 years later, farming that old debt out to collection agencies.
I’ve also paid fees to use another bank’s ATM maybe 3, 4 times in 25 years, TOTAL. I currently have one credit card w/ no yearly fee I used fairly often. I’ve started using my debit card more and keep a very safe balance in my checking account, so it’s never a problem.
I do get the feeling banks prey on the unwary but the key word here is the unwary. If you’re paying attention, you don’t get dinged. I also haven’t bounced a check since the late 80’s.
I do work as a bookkeeper/accountant and I have to say, ever since I started handling other people’s money professionally, I’ve learned to handle MY money better too.
And I’d like to make an exception here for anyone like the poster above who’s carrying medical debts on plastic. Serious shit happens and sometimes, you’re just stuck.
Vince CA
Just bragging here: I have awesome credit. We keep only two credit cards, both rewards cards that recover some of the merchant fees back to my pocket. I NEVER MAINTAIN A BALANCE. I’m the CCCo.’s worst customer. Good thing they can still ream merchants though.
KDP
@Mnemosyne: Perhaps it is type of credit card account from BofA? I just received and reviewed my BofA statement, dated 2/6/2010, and there is no fee attached for full payoff. I always pay off my credit cards every month. Should BofA begin to impose a fee for full payoff on my account, I’ll immediately cancel the card?
I have 5 cards, and at this point I think that this is 2 too many. One I use for monthly bills like Netflix, my gym, DirecTV, and some recurrent charitable contributions. Paying this off is in my monthly budget. One I use for business expenses only, and those charges are usually reimbursed. When not reimbursed, I get to add them to my tax deductions because my company has no physical office so I work from home. A third (currently using the BofA), I use for incidental expenses and reservations. I used to rotate the cards, but I’ve been using just the B of A recently. What I have not yet done is to cancel the two ‘extra’ cards I have but don’t actually need. Both are from Chase , though one was originally WAMU. The WAMU card is the one I’ll definitely cancel because it is the most recent. I make keep the other just to rotate between BofA and Chase and have the option of one to cancel if they impose a fee for paying off.
It is difficult, though, if you are already in debt to manage unexpected expenses without using credit. I am only able to manage my finances as I do because I structured my budget in this way as I rebuilt my life after several years of extreme personal and financial difficulty. First, I got a stable living arrangement and job. Then, I began to rebuild credit, and made the point of NEVER charging more than I knew I could pay off in a month while still putting money in savings. It also helps that I make a very reasonable income in the mid-5 figures after deducting for partner’s health insurance and 401k. His monthly contribution helps too, but it wouldn’t change my finances much if we were not together because I would not be paying his health insurance and other expenses like food and utilities would go down.
I feel fortunate that, ten years later, I have almost a year of necessary living expenses in savings (not counting retirement), have been able to pay for my college tuition out of pocket (2 years at CC, now 2 years at state university), and can pay my monthly expenses while still saving. In 2008, just before the big bust, I gave my persuasive speech (with notes thank you very much) on personal financial management. My recommendation to those living at the edge of their income to save was to put away their small change every day. It is amazing how quickly it can add up.
Libertini
@Punchy: I don’t understand why you don’t understand. Smug much?
The Republic of Stupidity
@Jamey:
Sorry, but that really needed to be fixed…
some guy
Not all of us are perfection incarnate. Some of us make stupid mistakes w/r/t credit cards at some point in our lives and end up paying dearly for them for years, perhaps decades.
While we may have been “clueless dumbasses” as you so artfully put it, that doesn’t excuse the fact that our ignorance was grossly exploited for huge sums of money by folks who did know better and, well, that tends to leave a rather bitter taste in our mouths.
Sister Machine Gun of Quiet Harmony
I have a good credit score, and I pay my cards off completely at the end of every month. You don’t have to maintain a balance.
I know the credit card industry considers me a freeloader. I am happy about it. They are getting cash from the retailers everytime I use my cards. As far as I’m concerned, they are getting paid as much as they deserve.
Dave Fud
I have a Schwab credit card that pays back 2% of all purchases in cash. All charges are paid off monthly. Adding in the business transactions that go on the card and are reimbursed, the 2% is actually quite a nice sum – much better than crappy sky miles.
At the end of the day, budgeting is not any different if you have a credit card or not. It’s sort of like pain meds: if you overuse barbituates, you get hooked. If you only use what you need (in theory) you don’t. In the case of credit cards, if you use them to spend beyond your means, the finance companies are perfectly happy to open one of your veins and suck you dry.
Haven’t been taken advantage of by banks since I changed exclusively over to credit unions. In my opinion, finance without rape is quite preferable for any of you who may be on the fence about changing from a bank victim to a credit union member.
MattF
I have cards from both Citi and BoA, and neither charges me an annual fee. I also pay in full every month, so from the bank’s point of view, I’m a perfect deadbeat. Of course, the banks could decide to charge me a fee, but I suspect that customer profiles show both banks that if they did, I would close the accounts.
some guy
@Libertini:
While understanding the terms and avoiding the tricks and traps of the credit card industry may be easy for some, managing a little bit of sympathy for those who were suckered is apparently “rocket science.”
James K. Polk, Esq.
Credit cards are my key to budgeting.
They keep everything I spend archieved on the interwebs. They allow easy use of my funds.
They provide a firewall against my bank accounts for phishers and scammers.
And, I get 3% back on purchases.
My only need as an end-user is to make sure that I can afford what I buy and that I make an online payment (obviously in full).
I don’t like the CC companies skimming off merchants bottom line to cover the costs of the machine, but that is a double edged sword.
adolphus
@unabogie
Absolutely agree, I was merely pointing out that in the article referenced, this seemed to be the case. Like I said, I admire people who can live without credit cards and agree it is not all about having money to save money.
On the other hand, should I assume you have really good health insurance that covers you and only have co-pays and deductibles smaller than your savings? It also covers dental and optical? Catastrophic illness and accident? Covers all dependents? How about car insurance? Fully covered in case of accident due to uninsured driver? Hit and runs? Theft? Full replacement of vehicle?
2.5 years ago I was debt free. I now have about $4k on my one card and it is all health and auto related. (and yes I do public transportation myself, but wife needs the one car we own to get to unserved location.)
Again, I respect people who live without CC’s. I don’t have the animosity toward them others seem to, but even if I did, getting rid of them is not an option nor do I think I would take it if it was. They are useful if you use them wisely.
WereBear
If you are fortunate, yes, you don’t know why anyone is making such a fuss.
If you’ve had cards move around their due dates, “lose” payments, and put misleading or simply wrong information on their payment websites, just to rake in more late fees, then you know what all the fuss is about.
Martian Buddy
The tipping point for me was when I read the credit card industry’s definition of a “deadbeat.” One would think it would be someone who runs up a massive balance that they can’t pay, right? That’s what I would have thought. It turns out that “deadbeats” are people who pay off their balance every month.
So, yeah, I’m totally onboard with the sentiment that credit card companies exist to shaft their customers (cardholders and merchants alike.)
Kirk Spencer
The primary advantage of the credit card, for me, is that I do not have to carry large amounts of cash; and should I get robbed, I still lose no money.
Yes, I save in advance of large purchases. But I don’t have to go through the hassle of writing (and tracking) a check. I don’t have to carry hundreds of dollars, nor pull them out in front of someone who may decide I’ll have more as I reach my car. I have zero compunctions about handing my wallet to the guy with the knife or gun as NOTHING in there is irreplaceable, nor is it going to destroy or massively disrupt my life.
At my last place of work I also had a corporate card. I used this for an entirely different advantage: receipts for expense tracking. Every single business purchase was made on the card regardless of how trivial it might have been. That single sheet went with my expense voucher and took care of pretty much everything. (Well, mileage on the car was special, but that was relatively minor.)
Zuzu's Petals
It took me years to get out of debt – student loans and credit while going to school – but the feeling on the day I finally paid it all off was fantastic.
I now have one credit/rewards card, which I use for everything, including groceries. The hard and fast rule is to pay it off every single month no matter what. I usually go to Hawaii with my reward miles.
They say that you tend to spend more money with a credit card than you would if you were on a cash budget. That may be true – I can certainly see it’s easier to make impulse buys. But I never spend more than I know I can pay off.
(If my bank starts charging for full payoff, I’ll definitely rethink it.)
Kirk Spencer
While I was reading the above, some other posters made responses in advance (not intentional).
There are bad companies – the ones who will add an extra charge and such and try to get charges while getting that cleared. I use a bank I’ve trusted for pretty close to 20 years now. I used to have a second card of my own. The bank played games. I have accounts with neither the bank nor their card any more.
adolphus
Oh, and those who think they are freeloaders because they pay off their balance every month think again. They may not make much money off of you, but they bleed the merchants from whom you purchase dry through fees, machine rentals, electronic connections etc etc. which is then added to the consumer price of the good or service.
In that way we all pay the banks for cc, even if we pay cash.
matt
I dislike credit cards and their users because they effectively increase by 3% the cost of everything I pay for in cash.
Chris Johnson
Am I correct that the whole point is to maintain a good credit score so IN CASE some desperate calamity happens to you, you are allowed to resort to getting raped by credit card companies for a bail-out?
The mortgage thing seems more practical, but I already have a mortgage and don’t miss a payment. I seriously resent this whole concept that you tailor your life to ‘credit score’. It resembles the insurance scam- I don’t want to do business in any way with anyone known to be treacherous.
I have two debit cards both associated with checking accounts and don’t see how ‘holds’ are such a problem if you are keeping track of what’s spoken for. Isn’t that just like paying upfront?
Punchy
Am I supposed to feel sorry for people who felt the need to spend money they didn’t have (important exception: medical bills)? What is it about the idea that borrowing money (essentially what a CC is) shouldn’t have fees attached?
CC Hell sucks–been there, done that. Never, ever once blamed the CC company. My debt, my fault. Continue to use them freely, fully understanding they set the rules…because….it’s their damn product.
Jamey
RoS
Bwahhhahaha. Correction noted.
Graeme
Amex just bumped my Optima rate to 27%!!
I paid off the balance immediately when I saw that on my statement. As soon as the payment clears I’m calling to cancel the card. They can go die if that’s the kind of rate they want to charge.
Libertini
@some guy: You said it better. : )
I worked in the consumer loan and then the credit card divisions of Bank One/First USA before it was purchased by Chase Bank. I saw first hand the kind of damage done, and I saw the insider tricks they used to do it with.
I also was well aware of the late fee scam they were running, as were many of my coworkers, but we had little recourse to get the company to own up to it. It made me physically ill, and I had to quit that job even without a better one in hand. In 2001, Bank One was sued by its shareholders for overstating the value of First USA Bank before the merger, with specific mention of overstating late fee revenue. The shareholders won.
I don’t want to go on and on (and I could) but the worst thing now is that recent changes in FICO scoring are coinciding with banks tightening credit, and many people who made smart choices and managed their credit well will still see a dip in their credit score due to some of the new policies and practices. Even slightly lower credit scores result in higher interest rates on mortgages, especially now.
daryljfontaine
@some guy:
Yep, I’m one of them. Foolish youth with access to easy credit led to regretful adulthood with more debt than I should have ever had. Fortunately I’m in a position right now to roll my debt snowball downhill.
And the practices of my credit card issuers during this time has led me to the general attitude described in Cole’s original post. Rate hikes not actually based on specific card activity, late fees on payments that were mailed well in advance (online payments solved a lot of that), etc. — the banks are trying to play the good guys now, but they had no problems kicking people when they were down before.
Long-term strategy is to move to responsible “AmEx”-like credit use, using a card to keep it active and paying off the balance. But that doesn’t change my resentment of the predatory practices engaged in by the major banks up to this point.
D
Liz
@Punchy:
Really? why? I don’t want the credit card companies to make money off me. But if I want even a modicom of convenience in my life I have to have a credit card. That just doesn’t seem right to me. And the fact that I get charged for being fiscally responsible really chaps my ass.
Martin
I don’t think the article makes the case that fewer people have cards. Just because fewer were issued doesn’t lead to that conclusion. More likely fewer people churned cards to get better reward/cash back offers as those offers dried up, and perhaps people are holding fewer cards than before.
But I have 3 cards. Never paid a monthly fee and never paid a penny of interest on them. Why refuse an offer to get 3% cash back?
And adolphus has the formula right – everyone is paying the merchant fee anyway.
The Republic of Stupidity
@Graeme:
An all together appropriate response. I did that to a CapOne card mebbe two years ago. The drone I talked to on the phone the day I cancelled the card actually tried to argue w/ me and talk me into keeping the card, then get huffy when it didn’t work.
If more people would push back like this, we’d prolly get better treatment in the long run.
The place I keep my IRA recently dropped the ‘yearly maintenance fee’ if I now make at least a $2,000 contribution every year. (It’s one of the BIG banks…)
I can only assume this was in response to people moving their money to smaller banks, seeing as I’ve NEVER known a bank, esp a BIG bank, to ‘be nice’ to the customer if it didn’t feel it had to. Won’t do any good… I’m still moving my funds OUT of that bank to a smaller, community-type bank soon.
The Republic of Stupidity
@Jamey:
Some t’ings jes hafta be said…
Libertini
@Punchy: You don’t have to be sorry for anyone, but this industry has been ripe for further consumer protection laws for years. Lack of trust in credit card companies is well deserved, and not just by those who overspend. I worked in this industry for many years and I saw it firsthand. Good for you for being a responsible consumer, but trust me, those guys don’t need you to stand up for them.
Lurker
@Graeme:
It’s not just AmEx. Tons of Citibank customers in good standing recently had their rates raised to 29.99%:
http://www.smartbalancetransfers.com/blog/2009/07/citibank-raises-interest-rates/
Even that’s not the worst. Subprime cards charge 79.9%:
http://janebryantquinn.com/2009/12/for-the-desperate-credit-cards-at-79-9/
This is another reason I want to switch to a credit card issued by a federal credit union instead of a South Dakota bank. South Dakota has no usury laws, so credit card operations based in South Dakota can raise their rates as high as they want.
Federal credit unions, however, cannot raise rates higher than 18%. This seems fairer to me than no interest rate cap.
The Republic of Stupidity
Punchy
I don’t understand why you don’t understand. Smug much?
Am I supposed to feel sorry for people who felt the need to spend money they didn’t have (important exception: medical bills)? What is it about the idea that borrowing money (essentially what a CC is) shouldn’t have fees attached?
CC Hell sucks—been there, done that. Never, ever once blamed the CC company. My debt, my fault. Continue to use them freely, fully understanding they set the rules…because….it’s their damn product.
Steeplejack
@FoxinSocks:
I understand about the credit cards, but why the debit card? What’s wrong with using that?
Mnemosyne
@Brian J:
Actually, the solution has been to not have a balance on them at all — we are currently zero dollars in debt now that the car is paid off — but it’s pretty interesting that you’re automatically assuming that we must be irresponsible people with thousands of dollars in debt if we’re upset about the way the credit card industry is screwing us. I’m not sure otherwise why you would be advising G to get a third credit card when he already has two that are completely paid off that he’s had for 20 years.
Martian Buddy
@Steeplejack: It’s another area where card issuers are getting creative with fees. (Or perhaps “innovative”–that seems to be the euphemism of choice for describing the derivative mess.)
Comrade Dread
As soon as I pay down my existing cards, they’re going into my safe and I will use them once a year to keep them active.
The banks can go f*** themselves.
matt
@Martin:
Where do you think that 3% comes from? It’s tacked onto the price of whatever you are buying. It would be okay if the law permitted passing on the credit card fee to the consumer (the way some gas stations used to), but for some mysterious reason, no.
WaterGirl
@Ash Can: I live in Illinois and I was thrilled that he dropped out. And if the Democrats (essentially) made him do it, I am that much happier. It was going to be a nightmare otherwise. What I don’t know is how an alternative candidate gets chosen. Dare I hope that it’s the person who got the most votes of those who are left?
Brian J
@some guy:
You make valid points, but I don’t think anyone disagrees with you. I think some are surprised that many are arguing that there’s no good reason to use credit cards, that they are more or less worthless and evil in every single way. It’s not an all or nothing issue, but some people–maybe not you, but some–seem to think that it is.
dcdl
@adolphus:
I completely agree with your thoughts. We live on one income and my husband’s income has dropped by at least a 1/3 since hours have been cut. If we didn’t have credit cards I don’t know what we would’ve done this past year for emergencies. We had a savings account, but went through that and we have no extra money to rebuild it. My son had a broken arm this past year that cost us about$3500. We could’ve gotten a medical credit card to pay it off, but decided to use the one we have. We have to pay for any doctor visits, labs, and testing until we reach a deductible and that eats into our extra money. BTW, we’ve both looked for part time jobs, none out there.
I would suggest to people if you need a credit card get a credit union credit card. Low interest rate and they don’t seem to dick around with you on hidden fees and such.
To me reality is no matter how much you save sometimes unexpected expenses happen and you go through your savings and as you try to rebuild sometimes more crap happens. And the cycle never seems to end.
Steeplejack
@Kirk Spencer:
Almost everything you mention applies to a debit card as well as a credit card. The hassle of writing a check and/or carrying hundreds of dollars in cash is not the only alternative to a credit card.
And when I was mugged a few years ago my debit card was stolen, but the bank (BoA) canceled the charges on my checking account after I reported the theft and canceled the card (about $100 at a string of gas stations and quickie marts on a road near where I was mugged).
Brian J
@Mnemosyne:
I never said that someone needs to go thousands of dollars on debt or get an additional card that they don’t need. I’d never suggest that.
What I did say that was that if someone isn’t happy with the card(s) they now have, they can get a new one with better terms and then use that if they still plan to use a card at all. The old cards can be kept active but used as little as possible. That may not have applied to the person whom I was responding to–I don’t remember his specific situation–but I think it’s a general rule that works.
CPinHI
I’ve actually started using my credit card instead of my debit card at stores and such, because if the information gets stolen it is easier to fix. I just pay off the whole thing each month. I find if I have cash, I spend it–for instance, if I’m near a Starbucks and have money in my pocket, I’ll go in and buy a coffee, but if I won’t go in if I have to pay with a card.
I watched my mother struggle with credit cards growing up, so I’ve always had the proper wariness. Even so, the debt I paid off last year was around $7,000, and for the life of me, I can’t think of what I spent it on…some was moving expenses and hotels (they had to ship my stuff to another island), but that only came to about $3,500. I wonder where the rest went? That’s one of the troubles with credit cards: it doesn’t feel like real money until the amount of debt gets unmanageable.
Now that my cards are all basically empty, my big worry is surprise annual fees and inactivity charges. I’m keeping all my cards because I think having open credit lines helps your credit rating, but if I have to start paying money to a company for not borrowing money, that account is getting closed!
Steeplejack
@Martian Buddy:
Hmm. Thanks for the link. My debit card is with the universally reviled BoA, and I don’t get hit with any fees at all. And my checking account is free because I have direct deposit of my paycheck from a part-time job.
John S.
I fail to see where I am getting screwed by Chase over a credit card that:
– Has no annual fees or membership
– I pay off every month and incur no interest
– I rack up very useful reward points
Over the course of a year, I pay less than $50 in interest or fees, so how am I getting worked over exactly?
FoxinSocks
Steeplejack, regarding not using the debit card:
I’ve spoken to several small business owners and I don’t understand quite how it works, but everytime I use my debit card, it costs them money. Not only does it cost small businesses money, but in the last year the banks have increased the fees as well.
Elie
@General Winfield Stuck:
Didnt the credit cards just represent essentially a balloon to carry along a lot of commercial enterprises (and wealth generation), that could not be supported otherwise? They could not be supported otherwise because true wage/income increases have slowed or not kept up and the growth of service sector, hourly wage jobs have not been able to drive the demand necessary for the accumulation of wealth by many of these enterprises. The corollary would be that without credit cards and debt based spending, therefore, we would have fewer businesses but the businesses that existed might be less fragile. We could discuss whether the smaller number of businesses ultimately would provide the same number of jobs and how we would do that.
To me, the driving limitation to all of this, and the reason the credit card nation developed is that it covered up that horrible truth — real wages and income cannot support the demand for services necessary to keep our economy chugging along at the level we have all come to expect. We can “fix” the credit card thing but not without having to face that ugly reality. THAT is what scares the administration and everyone else, frankly. THAT is the race to the bottom that everyone feared during the discussion around passing NAFTA back in the 90’s (though credit card nation preceeded that)
asiangrrlMN
@Mnemosyne: Really. Huh. GM floated that prospect many years ago and got so many outraged protests that they backed down.
I have one card. I pay it off in full each month. I have an excellent FICO rating.
Zuzu's Petals
@James K. Polk, Esq.:
I’m curious, which card gives 3% back? If you don’t mind saying.
Thanks.
Steeplejack
@FoxinSocks:
Thanks for the information. I presume that small businesses are hurt by credit cards as well, since there is a charge to the merchant every time a customer uses one, just as with debit cards.
I thought in your original post you were referring to some direct cost or harm to you of using a debit card, similar to the credit cards’ “declaring war” by jacking up their rates and cutting your limits.
Sock Puppet of the Great Satan
” I sense a lot of people now run with the baseline perception that banks and credit card companies exist only to screw their customers.”
I’d say that perception is accurate. Chase and BoA couldn’t be more blatant about it if they offered you a free rohypnol cocktail with every credit card offer.
silentbeep
@Linda Featheringill:
I am a true case of someone who leads a very full life with only one credit card. And it’s almost paid off anyway.
catclub
Adolphus @ 21
“I am one broken leg or one car accident away from total destitution and if it takes a credit card to get me out, so be it. But then maybe I am too confident about the future.”
Now that’s optimism!
Dog is My Copilot
We have only one credit card and we’re trying to pay down the balance significantly on it. We cancelled another card we had when we received notification from the bank that the interest rate was jumping to about 27%, and they were lowering our credit limit. This was a card we paid off each month and we never went over the limit. Now, we follow the rule that if we don’t have the cash saved up to pay for something, it doesn’t get bought. Or the trip doesn’t get taken. We’re done with charging things, except for when absolutely necessary.
Michael
Actually, this is where the 2005 Bankruptcy Reform Act comes in. Prior to that point, there was still some consumer balance, in that everyone understood that high interest rates compensated lenders adequately to cover a higher default rate. Once the lower middle (and regular middle) class got shoved into repayment plans in far greater numbers than had existed before, their debt become the millstone that dragged down the economy, because their money wasn’t churning in the community.
In was flying into banker pockets and pretty much impounded from circulation.
catclub
Adolphus @ 72
“Oh, and those who think they are freeloaders because they pay off their balance every month think again. They may not make much money off of you, but they bleed the merchants from whom you purchase dry through fees, machine rentals, electronic connections etc etc. which is then added to the consumer price of the good or service.
In that way we all pay the banks for cc, even if we pay cash.”
So it appears they are providing a service (convenience of payment) and being paid for it. Are those merchants REQUIRED to accept those credit cards?
It sounds like a cost of doing business which the merchants accept. Did you know merchants have to pay for the goods they sell to you? I never knew.
The Populist
I have had a chase card for over 10 years. They closed it without notice. No lates, no over limits, no credit problems.
No big loss to me. I’ve been getting more into paying with cash on hand of late anyway. F- the credit card companies.
The Populist
What amazes me is whenever these pukes get regulated or have new rules placed on them, they run around claiming that the cost of business is now higher.
BULL. We bail them out when they get deregulated and make bad decisions and they repay Americans with higher interest rates, lowered limits and outright closure of the account. It’s scummy.
gelfling545
I had two cards. Now I have one on which I try to charge something monthly. I do this because the other card was canceled by Chase for NOT having a balance. I had both cards because trying to purchase airline tickets without a credit card is a nightmare.
The Populist
@adolphus:
You are correct. I am a merchant who’s business is e-commerce. They bleed you dry and legally you cannot even set a minimum payment limit (those that do are breaking the agreements they sign when getting a merchant acct).
The Populist
@gelfling545:
Agreed. My new thing is keeping a card with a tiny limit. Maybe 500-1.5K. This way I can rent a car, get a flight, etc AND it forces me to pay it back quicker in case I need it again AND it means I won’t be too deep in the hole should, heavens forbid, I lose my job, business, etc.
Sly
One of the biggest aspects of credit cards that rarely gets discussed is the impact that transaction fees has on prices. You may see petitions at some retailers to address them, but in terms of the public “debate” it never gets mentioned.
Basically, whenever you buy something at a store with a credit card, the store pays a fixed amount to the credit card company. The amount paid in fees gets really high when cards become the de facto method of purchase, and this cost is past on to the other consumers who don’t use cards through higher overall prices. As more and more people use credit cards for smaller purchases out of convenience, this really starts to hit retailers hard. Home Depot actually pays more money in transaction fees than they do in healthcare benefits (though this should probably be seen in light of the fact that Home Depot treats employees like shit and gives them piss poor coverage).
Everything else discussed above thread is important. Probably more important than this on a macro level. Just thought I’d throw out an argument why businesses hate credit card companies too (or, if they don’t, why they should).
tootiredoftheright
” Old debts seem to float in some sort of financial purgatory where they never really die.
”
The problem is the collection agencies. They often collect on the debt and don’t write off it so it is sold to another collection agency. A few states if I recall correctly have now made it a law that the collection agency if it calls people in those particular laws must make sure they have a valid debt if they don’t and call somebody who complains the collection agency can fined thousands of dollars per call.
Honestly they should make it a law not to have automated dialers. Hate getting calls for somebody I have never heard about and there is no effing way to respond to the collection agency that they have the wrong number and to quit calling!
Ruckus
@Vince CA:
Good thing they can still ream merchants though.
As a merchant I hope this was said tongue in cheek.
Those of you who don’t know how this works from the merchants point of view:
1. We pay a company a set fee each month to process cc. (in my case it is currently $5.00 was $15 till I switched co)
2. We pay a percentage of each transaction which varies depending on the card, on the amount of rebates you get and most importantly on the merchant bank we use.
3. We pay fees based on the volume of transactions and on the size of transactions on top of the transaction percentage and this also depends a great deal on what merchant bank we use.
4. My small biz pays just over 5% total charges on cc transactions. With my old merchant bank it was closer to 10% and they would hold back money owed to me in case you returned something. I heard of one bike shop whose merchant bank set up a $60,000. holdback fund. That meant that they did not deposit into his account any cc transaction funds until they had $60K of his money. Which they keep as they see fit. With no interest paid. With no access to the funds. He is now out of business.
Banks and cc companies don’t just screw the retail customer. Merchants get screwed as well. And try to be in business today without taking cards. You may not need one to live but merchants do.
The Populist
@Ruckus:
Amen. Further proof small businesses are easily kicked around by these too big to fail financial companies.
They would never try that with somebody like Best Buy or Apple, but if it’s the bike shop who services their community, watch out.
adolphus
catclub
Oh, don’t be a nit. I was just pointing out that there were a lot of people in this comment thread that seem to be taking some sort of pride in being “freeloaders” on credit card companies and that this pride was misplaced because even if they paid off their card every month, the mere act of using the card earned the cc some money. They may be a small part of the cc co’s bottom line, but they are part.
As the merchants on the thread have pointed out, and I agree with, most consumers are completely unaware of how much credit card companies make off of merchants. As someone else pointed out, this is the whole point behind frequent flier, cash back, and other schemes. They encourage extra credit card use, therefore earning more money from merchant fees than they pay back in flier miles and rebates.
In principle there is nothing wrong with this, in practice, as Ruckus points out, the banks and credit card companies are pretty heavy handed and don’t flinch from using their political power in DC or their economic power over merchants to squeeze til it bleeds. They write the rules in Congress and they know exactly how to finagle the take every last drop at the “cash” register.
My Truth Hurts
I just want to say that all of this talk about moving your money to a credit union or community bank is deceptive and wrong. I have used community banks, credit unions and BoA and ALL of them practice the same scams on the consumer. Late fees, hidden fees, etc. They all suck. Show me the financial institution that isn’t in the business of making money off the fees, margins and interest and I’ll show you a magical unicorn that shits rainbows.
Ruckus
@The Populist:
Actually it doesn’t seem to matter the size of the business, someone up thread pointed out that Home Depot pays more in transaction fees than health insurance. If true that points out 2 problems, HD probably has crappy insurance and even big companies get screwed by banks/cc companies.
SiubhanDuinne
I used to have a serious problem with easy credit and again and again found myself in over my head, to the point of not answering the phone for fear it would be a demanding creditor, or feeling my heart leap in my throat when the mail was delivered because it was invariably bills, final notices, and stern missives from collection agencies. Not a fun way to live. Finally, about 25 years ago, I managed to pay off all my old debt and went cash-only (to the point of having bought two cars for cash — very nice not to have a car note coming due each month). My one debit card will also read as a credit card for such things as online shopping, hotel reservations, etc., but whatever I put on the card goes through the bank as a debit, so I never get a statement or have to make minimum payments or anything.
For people who are self-disciplined enough to pay off the full amount every month on time without fail, I commend you. I’m not one of those people. I’m an ex-smoker and I absolutely know that if I were to light up a cigarette just to see what it was like after all these years, and with every intention of not getting hooked again — I would be doing two packs a day before you could say Joe Camel. In the same way, no matter how much I tell myself that “this time I know I can be responsible with credit, maybe just one little credit card” — the truth is, I know I will not be responsible with credit and the only way for me to guarantee that I stay out of trouble is not to go near a credit card in the first place.
Some of my friends say that not using credit at all will hurt my credit rating — but I say to them, if I never use credit in the first place, what do I need a credit rating for?
Ruckus
@SiubhanDuinne:
Some of my friends say that not using credit at all will hurt my credit rating—but I say to them, if I never use credit in the first place, what do I need a credit rating for?
This. Bravo. All a credit rating is for is to allow us to buy more crap. And become enslaved to banks and cc companies.
Self-disciplined.
This is the epitome of the problem. A lot of us don’t have the level of control that is really necessary on some part or all of our lives, be it booze, drugs, or money. Credit cards are easy money. Easy come, hard to go. It’s a monkey on our backs and even if we know it, it’s a hard addiction to shake. And like most addictions there is a pusher involved. And like most addictions, in moderation and used properly it is not a problem.
SiubhanDuinne
@Ruckus: Yes, for me at least it was definitely an addiction. I never went so far as to join a 12-step “Debtors Anonymous” group, but I followed most of their principles. Recognizing the addictive nature of credit abuse was really key for me. Instead of beating myself up as I had done for years and years, I merely acknowledged that this was one area that was out of my control and the only way to deal with it was to stay the hell out of its path. Interesting point you make about “like most addictions there is a pusher involved.” To which I would add enablers and co-dependents.
Ruckus
@SiubhanDuinne:
Enabler, pusher, potato, potatoe
Forty2
Why get all worried about your credit score if you have no debt and don’t plan on taking any on soon? About the only reason I’d need a good score is if I was taking out a mortgage, and that’s not happening any time soon.
My score is pretty high up there but I’d have no problem canceling any of the cards I have and telling those vampires where they can stick their blood funnels. I have far more credit available than I would ever use. And don’t think the notion of taking the mother of all cash advances and skipping off to the Caribbean hasn’t crossed my mind…
Ruckus
@SiubhanDuinne:
Enabler-Pusher, potato, potatoe
The Populist
@Forty2:
Don’t disagree BUT lack of credit usage could be cited as a reason for denial or higher rates on a loan. They like high scores BUT they like to see somebody who can handle and pay off loans regularly. So basically, if you don’t use your credit for anything, some lenders will fault you for it. I know people like you who have high 700s scores and they STILL have to jump through tons of hoops to get a low interest mortgage.
These guys game the system to hurt everybody.
The Populist
@Ruckus:
Good point Ruckus, but I guarantee you that if HD has to pay high transaction fees for cards used at their stores, just think what a small business pays.
Me? My business pays 2.5% on every sale plus .30 in tranny fees AND a monthly service fee of about $20. They will hold some transactions like the guy above who mentioned the bike store.
HD probably pays around 1.5%-2%, doesn’t get a hold to their account due to their volume and may have a lower negotiated tranny fee and service charge. Trust me, if I was any number of bank processors, I’d make a good deal for HD to keep their volume. My business and many like me? 200K in sales with 99% of it going through credit cards…fees can kill. I agree HD is paying a buttload in fees due to their volume, but until any small business like mine pulls in millions in sales it means higher fees.
Ruckus
@The Populist:
I was informed by an industry insider once that HD has in the past had a large holdback account, I believe in the 7 figure range. Could be BS, could be true. But I believe that any holdback is determined by the merchant bank and there is not a lot of negotiating. My last mb was like that and has done holdbacks on me to the tune of 50% of the sale amount. And was supposedly the mb used by HD. It cost me a major customer and forced me to educate myself on the subject, just to keep from going broke.
Cocksuckers want their pound of flesh and don’t give a shit where or who it comes from. Must be nice to own several houses, fast cars, planes, people, eat at the most expensive restaurants, buy your way out of legal problems and all the rest of the crap that excess money gets you. Oh and I forgot, that most expensive thing of all – a complete sense of entitlement to all of the above.
LosGatosCA
“It will be interesting to see what the long term implications of this will be, because I sense a lot of people now run with the baseline perception that banks and credit card companies exist only to screw their customers.”
Well, that’s an improvement. Maybe the collective IQ is actually going up.
Liz
@The Populist:
Agreed. My new thing is keeping a card with a tiny limit. Maybe 500-1.5K. This way I can rent a car, get a flight, etc AND it forces me to pay it back quicker in case I need it again AND it means I won’t be too deep in the hole should, heavens forbid, I lose my job, business, etc.
But with this strategy you need to watch your debt to credit ratio-having a high one can cause your credit scores to drop.