Continued from "Debt Free in a World of Credit"
Part I - The Dark Side
When my wife and I got married we were both free of credit card debt. Getting rid of it had seemed like a good idea. Our pastor and pre-marital counselor seemed to think so too. Since we had lived at home (our parent’s homes, that is) during college and had no college loans, paying off our cards wasn’t really that difficult of a task. We even had about $10,000 saved up, but trips to Europe and other things that seemed really important at the time began to chip into our nest egg. We still had a couple of car payments too and used a lot of our reserve money to pay for our wedding. Things had started off so well, but our income was very low and no longer sufficient to sustain our new lifestyle. It wasn’t long before we began to fall into the dark abyss of debt.
FACT: There is no limit on the amount a credit card company can charge a cardholder for being even an hour late with a payment. (reference)
What happened? Life.
One of the most common reasons for going into debt is spending more money than you have.
It’s simple math that even my 2nd grader can accomplish, yet so many people get caught in this trap. The problem is greatly exacerbated by low income. We were making minimum wage and then we decided to have a kid. I stepped up the job search and increased my income to something a little more reasonable, but now only one of us had an income. When we wanted or needed something, it was simply charged. Things came to a point where virtually everything seemed to end up on a credit card and then we got even more credit cards. They all came with great deals like deferred payments, 0% interest and cash back. Cash back? Yeah, we were making money on the money we were spending that we didn’t have and were paying interest on. What a deal!
FACT: There is no federal limit on the interest rate a credit card company can charge. (reference)
Our minimum payments began to grow faster than the weeds behind our newly built, expensive apartment. We had two car payments on top of utilities. Food bills added up and who really has time to eat at home. Restaurants are just so much more convenient, and you can’t live without TV or cable… We were poised to experience one of the great features of credit cards that you don’t get to hear about on the commercials. MASSIVE PENALTIES.
Think credit cards are cool? Try missing a payment.
We had never missed a payment. In fact, I’m not sure we’d even had a late payment. But none of that mattered when they slapped us with a $750+ penalty. Why did we miss it? We had the money; we just got so bogged down in life (I.e. our son being born) that we simply forgot to pay it. I don’t know if it was because we lost the bill or we never got one. You always feel a little paranoid and confused. Years later, we learned that credit card companies have committees that sit around and think of ways to earn more money. One of those methods involves sending a random group of people a bill late on purpose. Credit card companies were (until very recently*) not required to send you a bill in a reasonable amount of time, but you were required to pay it, including penalties. Enough people would pay the late fees thinking they lost the bill that it is worth it to credit companies. I was personally given a first-hand account from someone who worked in the industry confirming this exact same method and many other dirty tactics. Here’s an excerpt from an example from an ex-credit card customer service rep. Click Here for the full article.
HERE'S THE CATCH...knowing that it will take 7-10 days for your mailed payment to post (2-3 days postal & 5-6 days to process), the credit card company will wait and mail your bill 10 days before it's due, knowing that the odds of you mailing in your payment immediately the day you receive it is slim to none. That way, they get their late fee (MONEY! MONEY! MONEY!). I was told on break-time one day by a senior co-worker that legally a credit card company (I believe for those card companies based in Delaware) can hold sending your bill up until the 5th DAY before your payment is due--and don't think that they don't do that!!!!! Now you've got a late fee and finance charges being assessed on that daily!!!! When customers complain of this causal type of late fee, we couldn't justify with our withholding of sending your bill at the last minute or our lengthy sorting process, so we would just say it was a post-office issue and not our fault because "we don't have control over the postal system".
*Note: The federal government has been stepping in on this particular issue recently. Click Here to check out some of the upcoming changes.
Most revealing of credit card companies’ attitudes toward people is their reference to those who pay-off their accounts each month without incurring interest as deadbeats!
An excerpt from wisebread.com, The Dirty Secrets of Credit Cards:
Dirty Secret 9 – Good payers are called deadbeats!
Deadbeat – it’s what credit card companies call those folks who are responsible and pay off the balance each month. They don’t like those people, not one bit. That’s because they make little to no money off of them. No, credit card companies like you to carry a nice hefty balance and pay only the minimum each month. If you’re one of those people, known as ‘revolvers’, you’re part of the crowd that contributes roughly 90% of the credit card company’s income. What a crazy upside-down world credit is.
That’s pretty pathetic. What’s more pathetic is that we started off with no debt, had savings and still ended up with over $30,000 in debt. This noose would remain around our necks for nearly 11 years! Sometimes, we were able to chip away at the debt, but something always happened… Like a broken down car or a trip. It always seemed to hover around the same amount, even when my pay at work increased. It was hopeless. At times, we would just give up and buy stuff anyway. We tried tracking tools and books, but our hearts were never really into it.
Knowledge is key, but attitude is paramount.
Good attitudes can sometimes be like good intentions. The road to failure is often paved with them. A couple years ago, our mindsets finally began to change. We realized that we wanted to look at a different career path, but found ourselves stuck in the so-called “financial-draft”. It wasn’t until we started doing tons of research and following the advice of people like Dave Ramsey that we began to see the light.
To be continued...
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