June 20, 2001

10:23 AM

Currently, consumer personal debt is at an all time high, and at the same time we're being inundated with ads asking us to "live richly" and pay for all those "priceless" moments with credit. Credit card companies have maintained a steady stream of advertising that focuses on living in the now, and worrying about the consequences later. Without discounting personal responsibility, should credit card companies be left to advertise their message unfettered, or does anyone think they are too good and perhaps somewhat responsible for the high consumer debt levels?
posted by mathowie (51 comments total)

I recently heard a very candid and lucid economist say that if the U.S. population stopped living beyone its means, the economy would collapse. At this point, I think credit debt is an engrained part of our behavior as a society, and it has been happening longer than we realize. So, while I think that there are definitely evil credit card companies, we all bear the guilt of buying shit we don't really need.
posted by machaus at 10:30 AM on June 20, 2001

I carry no debt other than my mortgage. I have credit cards, but I don't use them often, and whenever possible I use the American Express card so that I am not tempted to let the payment slide. It is not the fault of the credit card companies that people cannot budget themselves. Everybody likes the freedom the cards give them to spend, there should be no surprise at the price.
posted by thirteen at 10:31 AM on June 20, 2001

Sadly, high consumer debt = "properous" economy. Just like high employment is good for "business", just bad for the individual people. It seems that if what this article says is true -- consumers are starting to default on payments and credit card companies begin to have to write off uncollected balances -- that the companies will have to reign in the ads a bit because they'll be shooting themselves in the foot by continuing to encourage people.

Really though, unless you believe that spending and consumer culture are addictive [like tobacco] it seems that it is a wholly personal responsibility issue. Which part of 19% APR don't people understand?
posted by jessamyn at 10:39 AM on June 20, 2001

I'm in favor of capital punishment for anybody too stupid to realize what a scan credit cards are.

"Wow! They upped my credit limit! How nice of them!"
posted by bondcliff at 10:42 AM on June 20, 2001

Oh man.

After I posted this, I got an email noting a new bill on a credit card I hadn't used in over two years. I logged into my bill payment center, noticed it was a $28 annual fee on a card I never use, so I called to cancel. It took a while to cancel and I had to go through several layers of customer support. The final person struck the fee from the card, offered lower rates and a lowered credit line if it'd make me happy, but wouldn't stop until I reminded him of my displeasure in getting late fees on payments that were sent a week early several years ago. I did some quick googling on the company and noticed they lost a class action suit against them for the very same thing.

I suppose my original point is flawed, if consumer credit advertising was controlled, I doubt it would do anything given the other 10,000 "glamorous life" ads people see each day. I think those are really what people respond to and end up living beyond their means.
posted by mathowie at 10:48 AM on June 20, 2001

consumers are starting to default on payments and credit card companies begin to have to write off uncollected balances

Of course, you could always write a law making it tougher to do that.

mat: I think that consumer credit advertising is a part of it, but you're right, you can't ignore all the rest of the consume-consume-consume society that surrounds it. Means and motive, both are important.
posted by claxton6 at 10:54 AM on June 20, 2001

it's a shame there isn't a good, viable alternative to credit cards as-we-know-them. I'm loathe to get one and to support the companies, but so many services only take credit cards that I'm really just delaying the inevitable.
posted by kv at 10:54 AM on June 20, 2001

And then there are those of us who started to wake up to the problem, got laid off and found ourselves in a world of hurt.

I imagine that bondcliff would like to have me shot too, as opposed to letting me declare bankruptcy and get a new start on my life. It makes for an interesting future conversation with my son who is now 3:

Alex: "How did my parents die?"

Foster Mom: "Well, they were stupid, full of hubris, and finally unlucky. We had to shoot them to make sure that they didn't pass on those traits. You were too young to be shot, so we decided to adopt you and teach you better ways to live. Now be quiet and eat your peas dear."

I'm a bright guy, and pretty savvy. But it wasn't until I was 28 or so that I started to wake up to the revolving credit issue. It's not because I'm dumb, I just never thought about it. Life's complicated, there are too many things to worry about, and there is a CULTURE in this country that encourages living beyond your means. The fact that some people have the vision, or character, or whatever to opt out of that culture doesn't mean that we should shoot those who don't.
posted by Irontom at 10:56 AM on June 20, 2001

it must be nice to be able to run to congress to avoid the natural consequences of your marketing campaign, yes?
posted by lescour at 10:59 AM on June 20, 2001

claxton6 beat me to it. :-)
posted by lescour at 11:01 AM on June 20, 2001

Generally, I'm in favor of shooting anyone who doesn't think exactly like me. :)

I did the credit card thing too. I was in my early 20s when I started doing the math and realized what a bad thing they are.

Personal finance should be a required class in high school. I'm not sure kids would be able to understand the concept of compound interest and finance charges though.

The alternative to credit cards is, surprisingly, credit cards. The key is to never carry a balance that you can't pay off at the end of the month. You get a credit rating and the card companies make little or no money off you.
posted by bondcliff at 11:01 AM on June 20, 2001

Why do you need an alternative to credit cards? As long as you pay the balance off every month, you're taking advantage of them -- not the other way around. I use my credit card for absolutely everything that I purchase (if possible), but I also pay off the entire balance every month. It makes keeping track of expenses much easier, and not only that but it's like getting an interest-free loan for 30 days.
On the other hand, if everybody was like me, credit card companies wouldn't make any money and they would all have to charge large annual fees... So I guess that mean that everybody that's mired in credit card debt is subsidizing my interest free loans. Thanks everybody!
posted by jnthnjng at 11:03 AM on June 20, 2001

I thought that you were charged interest based on the average balance for the month. So, even if you pay it off, you still carried an average balance and get charged interest. If all of them don't do this, they soon will I think.


Universities have solicitation policies that are non-existent when it comes to credit card application drives with free t-shirts for each one filled out. I understand that some organizations get a paltry donation for manning the thing.
College students are expected to be adults, I understand that, but I believe that the snowball starts there.

You would think that a credit card company could be run with much much lower rates and beat all hell out the competition. Where is that? Do we have too much network collusion between the big ones for that to happen? I'd jump at the chance to permanently move my 20% debt to 10% and I'm sure plenty of other people would too. How come it's not there?
posted by mblandi at 11:08 AM on June 20, 2001

The card companies are responsible, but only so far as any other company in a capitalist society is "responsible." The goal is to make money, so they accomplish that by feeding the materialistic nature of the society at large. I have credit cards, but only use them for emergencies and pay them off as soon as possible. My college years taught me that the 15 dollar pizza today will end up costing me 35 dollars tomorrow.
posted by karenh at 11:12 AM on June 20, 2001

should credit card companies be left to advertise their message unfettered...?

Yes, if by unfettered you mean free of government restriction. The alternative is far worse.
posted by mw at 11:16 AM on June 20, 2001

Actually, does anyone have any information on the process of granting credit? Because it seems like that's part of the problem: the ease of getting credit when you've already got some. And the endless solicitations for more credit probably make it worse.
posted by claxton6 at 11:17 AM on June 20, 2001

I thought that you were charged interest based on the average balance for the month. So, even if you pay it off, you still carried an average balance and get charged interest. If all of them don't do this, they soon will I think.

none of the credit cards i've seen charge interest for your balance for the month. the interest only starts accrueing if you don't pay the full balance off when you get the bill.
posted by pnevares at 11:23 AM on June 20, 2001

Pnevares, those I saw on television might be the harsh variety.
posted by mblandi at 11:27 AM on June 20, 2001

I agree with you aaron; the credit report companies need some sort of regulation. I got to see my credit score fall to subhuman levels due to a mistake that a bank wouldn't own up to. They pinned it on Trans Union; Trans Union pinned it on them.

I have had credit cards for a number of years, and am only now for the first time taking on a balance. Why? I've got six months with no interest. I can pay it off in six months, so I win in that I get my schtuff when I need it (asap), and the credit card company loses by not making any money off of me.

Also, I know far too many people around my age who are up to their ears in credit card debt and will likely not get out for years. Should we blame the individuals or the corporations? Or both?
posted by hijinx at 11:27 AM on June 20, 2001

claxton6 wrote: Actually, does anyone have any information on the process of granting credit? Because it seems like that's part of the problem: the ease of getting credit when you've already got some. And the endless solicitations for more credit probably make it worse.

One of my college roomates was a psychology stats nerd and is working for a credit card company now. Part of his job is tweaking the formulas for deploying new credit, upping limits, lowering rates, approving new applicants, and rejecting applicants. It's an elaborate system with many feedback loops that is constantly tweaked. I've noticed even temporary jumps in the credit I carry will result in a higher limit and new offers from other companies flooding my mailbox, all because of backend systems like the ones described.
posted by mathowie at 11:37 AM on June 20, 2001

"Should we blame the individuals or the corporations? Or both?"

The individuals.

As manipulative as advertizing is, the credit card companies don't hide the fact that you do have to pay your bills.

Should individuals blame tobacco companies because smoking didn't improve their image and make them look cooler? I suppose some of them do.

Unfortunatly, we live in a society that doesn't often accept that individuals are responsible for their own actions.
posted by bondcliff at 11:51 AM on June 20, 2001

Unfortunatly, we live in a society that doesn't often accept that individuals are responsible for their own actions.

Unfortunately, we also live in a society where businesses only act responsibly when forced to.

It's not a black and white world, and that's what I wanted to explore with this. Sure, people put too much money and buy too much useless crap on credit these days, but is it ok for them to actively pursue high school and college students everyday on campus? You know companies do that so students will go overboard and either spend their lives paying it off or get their parents to bail them out.
posted by mathowie at 11:55 AM on June 20, 2001

But Matt, the businesses are acting responsibly -- to their shareholders. You can't get a credit card on your own until you're legally an adult. If you're considered an adult, you're considered to be responsible enough to make your own choices. If you choose to spend your ass off, nobody's holding a gun to your head. It's just as ok for them to go after students as it is for colleges to recruit students with the intent of charging them $50,000 for a piece of paper with thier name on it in a special font.

I'm all for bondcliff's suggestion that a personal finance class should be required in high school.

Being Responsible -- It's A Part Of Growing Up!^TM
posted by OneBallJay at 12:04 PM on June 20, 2001

Credit card companies are doing a little bit lately to let consumers know that they need to be responsible. To me, though, it's a little like Philip Morris donating money to cancer research.

I think a big part of the issue is that credit is something you're supposed to earn. Credit card companies give credit away to anyone, including those who never would have gotten it if they had to earn it. Business-wise, though, it's brilliant.
posted by amyscoop at 12:10 PM on June 20, 2001

First of all, this article doesn't cite a source that I can find for the "personal debt at an all time high" factoid, which is crappy in the first place, but an interesting coincidence considering other news sources are citing recently released data that shows that personal debt relative to personal net worth is at an all time high (yeah, no source, I'm just as bad, but not getting paid). Duh. The stock market just tanked and something on the order of 75% of US families have stock market holdings. Of course the debt-equity ratio is gonna climb. The debt itself could be exactly the same, but the net worth has fallen. This would have nothing to do with credit companies' advertising.

Second, I think even if this is not the case, and americans really just have spent themselves deep into a whole on high-rate credit lines, the idea of blaming the credit card companies' overly effective advertising is absolutely preposterous. Should we ban the advertisement of McDonald's because more than 50% of the US pop. is overweight? Think about what that could be the beginning of...
posted by jeb at 12:11 PM on June 20, 2001

If you choose to spend your ass off, nobody's holding a gun to your head.

No, but what if they're holding you up to a societal ideal of "bigger better faster more" and the only way to compete is to max out your seven credit cards? Call me wishy-washy, but I think that we need to make more allowance for societal pressures than just writing them off as "Part of Growing Up".
posted by claxton6 at 12:14 PM on June 20, 2001

We wll soon be getting tax money back from Bush so that should take care of lots of our debts.
posted by Postroad at 12:17 PM on June 20, 2001

kv: it's a shame there isn't a good, viable alternative to credit cards as-we-know-them.

there are a couple, depending on which part of the credit card experience you wish to enjoy:

for convenience and handy bookkeeping:
- get a regular credit card at any rate of credit with no annual fee or other charges. pay off the balance every month, on time.

- put money into an account for "extras". save until you have enough for the things you want, and then buy them.

voila! all the convenience, none of the extra expense!

if you need money for something you can't afford, go to a bank and get a loan (and they may just try to give you a credit card.) put that item onto the card and then hide the card or cut it into pieces. pay it off as quickly as you can.

----

I've been saying for a long time that this "miracle economy" of ours is a shell game. if people started living within their means, it would all go to hell in a handbasket.

a healthy economy, by my standards, would be one in which
- most people lived within their means
- most people had a savings that could carry them through hard times or retirement
- the populace was fully (or nearly so) employed
- that employment provided *everyone* who worked fulltime enough money to provide for themselves food, shelter, and medical care.

if that economy were growing at a steady rate, all the better, but even if it were steady state, that, to me, would be a good economy. - rcb
posted by rebeccablood at 1:00 PM on June 20, 2001

oh, in april I linked a salon story on the rise in bankruptcy among young people today.

I love this quote:
Falling into debt at a young age used to be more difficult. Credit was something to be earned, and it usually took time. Moreover, debt was incurred chiefly as a result of major purchases.

'Fifty years ago, if you wanted to borrow money you put on your suit and tie and explained to a banker why you needed to go into debt,' says Allen Rosenthal, a San Francisco bankruptcy attorney. 'You had to have a good reason. But now, people go into debt one pizza at a time.'
posted by rebeccablood at 1:06 PM on June 20, 2001

Well, aaron's right, and it's because there's not a free market. In the UK, for instance, credit reference is a duopoly, run by Equifax and Experian. And to have so many (often crucial) decisions made by the computers of those two firms, with little accountability or transparency in their working practices, is frightening and Kafkaesque. I've seen people frustrated to the point of tears by attempts to get errors corrected in their credit records; in practice, it affects your life more than a criminal record.

What's particularly insidious about the credit card industry in the US is its blatant targetting of those least likely to use them responsibly: particularly college students. Isn't the standard credit limit on these things something like $10,000? And because people are basically introduced to the inevitability of debt when they reach college -- in the form of tuition loans -- a mindset of "in for a penny, in for a pound" is established: if you're going to be down the price of a new car by the time you graduate, you might as well live even further beyond your means.

In contrast, if you're a student or on a low income in the UK, you're not likely to get a bank loan or a card at all. (Although CapitalOne are now marketing a card with a high APR and a £250 limit for the "uncreditworthy".) The problem with this is that it drives people to the next tier down: the upmarket pawnbrokers that are an all-too-common addition to local high streets, and the loan sharks who do the rounds of the council estates.
posted by holgate at 1:18 PM on June 20, 2001

A pretty neat site I linked from my own a while back is creditcardfreedom.com. It's got over 3000 reviews of different credit cards. Was interesting to read what people had to say about the cards I carry.

Also, to Bondcliff's point "The key is to never carry a balance that you can't pay off at the end of the month. You get a credit rating and the card companies make little or no money off you."---more accurately, you *hope* they bother to report your good behavior to the credit bureaus. Not all do. Before signing up for a new card, do ask if they report to the credit bureaus.

If you intend to use your card to build credit, you need the answer to be yes.
posted by Sapphireblue at 1:46 PM on June 20, 2001

I don't see why you need a credit card at all. Check cards give you the magic sixteen digit number you need for telephone purchases, and access to cash at any ATM.

Buy lots, pay it off on time is a good strategy if you're already organized - but if you've got your money & bills managed that well, what do you need the credit card for? If I tried that I'm sure I'd pay them all kinds of money in finance charges for bills that were a couple of days late. Besides, what if something goes wrong between spending and repaying, and you can't actually pay it all off like you thought? These things happen, and once they do, it's hard to get back on track. I'd rather not even risk it.

Building credit - for what? If you aren't using credit, why bother trying to build it up...?

-Mars
posted by Mars Saxman at 1:56 PM on June 20, 2001

(for building credit, I believe that buying lots and always paying the minimum always on time is the best strategy. think about it. for a credit card company, the customer that pays them the most money is the best customer to have.)
posted by rebeccablood at 2:01 PM on June 20, 2001

Even if you aren't nickel-and-diming yourself do death with credit cards, a good credit rating can be useful when you're trying to get regulated, carefully-planned loans for the big purchases — cars, homes, etc. Also useful for other long-term financial commitments like apartment leases and even phone service (I once got out of paying a big deposit getting a phone hooked up in a college town). Rebecca may be disappointingly right about how to build up such a rating, though.
posted by harmful at 2:05 PM on June 20, 2001

well, I think that's the best rating. you will notice, if you get a card and always pay the balance, that they'll start raising the balance - provided that you have a hefty enough income. let them.

I understand that when it comes to buying a house, depending on your income, you may want to get rid of some of your credit cards, or have the credit limits lowered.

it's a big game, but I think most of the players are happy to tell you the current rules. - rcb
posted by rebeccablood at 2:09 PM on June 20, 2001

Personal finance should be a required class in high school. I'm not sure kids would be able to understand the concept of compound interest and finance charges though.


Although I don't agree 100% with the author, Rich Dad Poor Dad is a book that you could use to help kids grasp the idea - it also shows the power of compound interest like this "Manhattan Island was bought for $24 worth of beads but if they had stuck that $24 in an account at 8% a year, they would have had enough money to buy that and far more at todays prices" (badly misquoted, but you get the gist).
posted by bregdan at 2:26 PM on June 20, 2001

Financial education in high school sounds good. I don't recall a time when there were so many credit "options." Not ever. Citibank has been sending me offers for gosh, five or six years now, sometimes multiple times in a month. I'll get a call from Martha's Gro. & Bait Shop VISA Gold, say, at lunch after waiting 15 seconds to hear someone sound as if they are saying hello from a tin can. All these folks are turned down.

Then you have the check cashing and consumer debt "consolidation" outlets all over God's creation now, the ones you used to see only in major city ghettoes, maybe. Before that, there were loan sharks. If you didn't pay the money back at gigantic interest, you'd end up with a few fingers broken or lost or maybe a knee whacked. Then came the slightly more upmarket folks, who occasionally were indicted on burial insurance fraud, etc. Now it's all respectable and totally disgusting.

Alan Greenspan called for research regarding the above types of companies a couple of years ago. What the heck happened?
posted by raysmj at 2:50 PM on June 20, 2001

kv: it sounds to me that what you want is a debit card. It's co-branded through one of the major brokers, e.g. Visa or MasterCard, so you can use it just like a credit card with online retailers or at gas stations five states over. But it's tied to a bank account, and works like a check. You're not taking on additional credit, and you can probably earn interest on the unused balance in the account to offset bank and card fees.

jnthng and pnevares: paying off your credit balance every month is so bad for the credit companies, that some of them charge an extra fee if you do this. Others will eliminate your grace period so that they can recapture finance charges on the time between when you buy and when your payment arrives. Others will be stingy about granting credit increases. Yes, indeed, the credit industry will penalize the responsible users of credit -- make no mistake about that.

It sounds really weird when you think about it, but a credit account is really an asset to the issuer that can be bought and sold. There's a thriving secondary market in credit sales. Sometimes the people your account is sold to are less scrupulous than the people with whom you originally contracted.

A person I know who's facing a federal prison sentence received a personal loan from a friend of $150,000 to cover cleaning up his affairs and paying for his federal appeals lawyer (at $25,000, his retainer is incredibly cheap). This person and his wife went through all their finances and paid off all their credit cards. When they were done, the total was close to $80,000. Eighty Thousand Dollars. His "high" guess was perhaps half that. He wasn't even paying attention to the aggregate balances on all the accounts he and his wife had, and it was costing him, probably, $16,000 a year. One monthly payment was $300, of which $280 was finance charges.
posted by dhartung at 2:54 PM on June 20, 2001

Mars said: I don't see why you need a credit card at all. Check cards give you the magic sixteen digit number you need for telephone purchases, and access to cash at any ATM.

I don't have any credit history (due to being out of the U.S. during college), and have yet to build one up (3 years back in the States). I never really have a problem until I try to rent a car. A few places will let you rent with a debit card, but most will not -- so without a credit card your selection goes down.

One nice thing about credit cards (not that I have one) is that you can dispute a charge without having had the money already deducted from your account...
posted by annekef at 5:02 PM on June 20, 2001

I'd jump at the chance to permanently move my 20% debt to 10% and I'm sure plenty of other people would too.

Check with a non-profit credit counseling service in your area. Even if you're not behind on your payments, these places can often get your interest rates lowered as long as you can do without that account. My credit was in the toilet anyway even before I went to one of these places, so I really have no idea whether such an arrangement reflects negatively on your credit report, but I'm currently paying anywhere from 0% to 12% on accounts I had been paying 20% and higher on. The banks know their alternative is for you to declare bankruptcy, in which case the court will decide what they get (if anything), and they'll try any plan that'll get them all their money back given that alternative. In fact, most banks have standing offers for people on a credit counseling program. The catch is, they won't just offer them if you ask, you have to demonstrate you're taking steps to better manage your debt.

If your credit is in the toilet, by the way, you'll probably still be able to get a car loan or a mortgage. Those are secured loans; if you don't make your payment, they take your car or your house. You'll pay a higher interest rate than someone with good credit, so it might not make financial sense, but you can still get the loans if you need it. (Some home finance companies actually offer "no credit check" mortgages.) After being on this payment plan for a couple years, I've already got a new, unsecured Visa card with a grace period and am getting offers in the mail for auto financing.

Credit cards are generally unsecured loans, which make banks nervous. When you don't pay, they can do three things: 1) send you threatening letters and make harassing phone calls and hope they can pressure you into paying (needless to say, you should never succumb to these scare tactics); 2) take you to court (they will probably be able to get a judgment against you, but then they have to collect on it); 3) report your naughty naughty self to the big three credit reporting agencies. They can't take the stuff you bought with the credit card unless they specifically claim a security interest in the things you bought with the card, and as far as I know only Sears does that (and they may not still do it).
posted by kindall at 8:58 PM on June 20, 2001

I got a regular loan at a bank once in order to pay off my credit cards. it wasn't that big of a deal, I just wanted to consilodate it so I could concentrate on paying it off. they used my car for collateral. I got the money, wrote the credit card company a check, and that was that. - rcb
posted by rebeccablood at 9:03 PM on June 20, 2001

What's particularly insidious about the credit card industry in the US is its blatant targetting of those least likely to use them responsibly: particularly college students. Isn't the standard credit limit on these things something like $10,000?

I somehow doubt it. Of the small handful of credit cards I accrued through college not terribly long ago, the starting maximum balance was typically in the $500-$1000 range.

Not that it wasn't ridiculous, mind you. MBNA kept bumping up my limit by leaps and bounds for no apparent reason; by graduation day, they had granted me ~$5,000 of credit, despite the fact that I had clearly indicated on the original form that I had no real income.
posted by youhas at 11:56 PM on June 20, 2001

If you have a stable job and a 401(k), that may be a good way to reduce your credit card balances. Most 401(k) plans offer loans against your accumulated balance, and the interest you pay (not necessarily the best rate, but much lower than CC's) usually goes right back into your account. As I understand it, though, the penalties are hell if you get fired or quit, and can't pay off the balance immediately.
posted by harmful at 6:16 AM on June 21, 2001

Another thing you usually can't do without credit - not without a credit card, but actually without credit - is get a cell phone

Actually, even with my crappy credit I was able to get Sprint PCS service. I did have to put down a $125 deposit, though, and you probably won't qualify for the "free phone" deals many carriers offer.
posted by kindall at 4:08 PM on June 21, 2001

That wasn't my experience, aaron - I got a cell phone with no trouble, and I haven't had a credit card in several years. Got a good monthly rate and the free phone too.

-Mars
posted by Mars Saxman at 6:00 PM on June 21, 2001

That's particularly insidious about the credit card industry in the US is its blatant targetting of those least likely to use them responsibly: particularly college students.

First of all, this makes no rational sense. Why would a credit card company deliberately try to market to someone who would not be responsible, i.e., someone who won't pay their bill? Secondly, I know for a fact that the reason that college students are marketed to so heavily is the fact that they are actually better about paying their credit card bills than any other demographic.

Well, 26% won't get a dime from the rebate,

Right, the ones who don't pay income tax. Stop beating the dead horse of deceptive facts, pal.
posted by ljromanoff at 8:04 PM on June 23, 2001