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During a recent edition of CNN"s Your Money Matters a caller shared that they had exceeded their credit card"s maximum line of credit thus triggering the default 29.9% interest rate and was trying to solicit advice as to how to deal with this daunting financial problem. One of the guest pundits responded first by stating that the caller had fallen into a trap largely of their own making.
The show"s host, Ali Belshi, obviously taken aback by such a pointed response by his guest, countered that at least when the mob was in the loan shark business, the victims didn"t have to put up with that kind of self-righteous nonsense. As his guest smiled at Belshi"s sharp reply Belshi went on to allege that the banks and credit card companies prey on the poorest of us and by doing so this constitutes an almost criminal act. He added that personally he has no credit card debt and has not carried a balance on any of his cards for a long, long time but he is well-compensated by CNN and also has a good education. Belshi"s concluding statement on the matter was that in these difficult economic times, it"s not easy for the large majority of folks that haven"t been as lucky as he.
Belshi"s allegory brought to mind a picture of the 1960"s stereotypical loan shark and got me wondering just how we got from there to here. After a little bit of research I discovered that back in the sixties and early seventies most states capped not only the amount of a loan but how much interest lenders could charge. If you needed more than the bank would provide you either had to scale back your needs or seek out a more "creative avenue" for financing. This "creative avenue" often led to the neighborhood loan shark.
However, in 1978 the United States Supreme Court made a ruling that resulted in the elimination of the usury laws that created the limits I cited previously and the lenders haven"t looked back since. As a result, most neighborhood loan sharks vanished around the same time disco died.
This landmark decision helped expand the availability of credit, which has been a double-edged financial sword for most all Americans. Consider this: In 1977 according to the Federal Reserve only 38% of households even had a credit card; now over 75% of us do. Most telling of all however is the fact that in 1977 just under 10% of those considered part of the "lower class" had a credit card; today that number is north of 40%.
Not surprisingly, as the availability of credit soared, so did the number of bankruptcies. Shockingly though, instead of reinstating the laws that existed up until the Nixon administration or, at the very least, instituting interest rate caps of some kind, Congress simply made it more difficult for most families to declare bankruptcy.
The delighted lending industry took advantage of the situation further by extending even more credit to these folks by sending out more than a billion credit card offers every year.
Especially heinous was the fact that with these mailings, they took special aim at the highest-risk households (defined by this industry as those that already had used more than 30% of their available credit line). Is there any wonder that this whole "house of cards" collapsed in 2008 resulting in the worst economic failure this country has experienced since "The Great Depression"?
Admittedly, Congress did pass legislation in 2010 that has put an end to some of the credit card companies" most egregious practices however these entities have very powerful lobbyists in Washington, so there still remains plenty of loopholes for them to exploit American households through. As a result, the best way to beat them at their own game and protect yourself along the way is to not carry any balances on your credit cards.
Credit cards by themselves are not evil; in fact, when responsibly used, they can be a huge convenience. They remain the very best vehicle for building a credit history not to mention the ability to get cash 24/7/365 via any ATM machine. But if you become addicted to this convenience and begin carrying balances on multiple cards, they can become an economic cancer with disastrous consequences. Unlike in the past, these potential ramifications now transcend every income bracket which is the main reason why it"s so important for every responsible consumer to learn to live within their means.
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Source by William C. Walker
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