Credit Cards, An American Way Of Life Essay, Research Paper
CREDIT CARDS: AN AMERICAN WAY OF LIFE?
April 21, 1999
Kevin L. Thompson
Credit cards are quickly becoming a major problem for the American people. It is so easy
to get into debt with a credit card, and anyone with a mail box and a pulse can get one. Many
Americans can’t get out of debt and they run into credit problems; some even file for bankruptcy.
The reason it is so easy to use a credit card is that when you use plastic instead of cash, you spend
more because you don’t emotionally register the pain. If you lay down $50 at lunch, you’ll notice
if it’s a $50 bill. With a credit card, you don’t even realize what you paid.
The typical American carries five to seven credit cards with an average balance of $1,670
per card (People Weekly). Banks are pushing the credit card to consumers in an effort to make
money on the interest rates and various fees that can be charged. Since the early 1990’s, banks
have upped the credit limit on customer’s cards by more than a third, and sent out another three
billion offers in 1997 alone (Dollars and Sense). The new targets for these credit card companies
are the low income household families. While only 20% of poor families had a credit card in
1983, 40% did in 1995. Their balances were higher than ever, exceeding $1,300 on average in
1995, up $700 from 1983. The reason these credit card companies are focusing on the low
income people is that once they are in debt, they can only afford to make the minimum payment
and therefor can never pay off the balance of the credit card. For example, it would take 34 years
to pay off a $2500 balance if a person just paid the banks suggested minimum payment.
The middle class is also going further into debt. Credit card debt rose 23.5% from
January 1997 to March 1998. Sixty three percent of all U.S. households now owe money on their
credit cards, and last year they spent $70 billion in interest charges and fees. Credit card debt
now accounts for 43% of all consumer loans and is growing faster than all other types of
household borrowing, including home mortgages or auto loans. The average household now
owes an amount equal to 95% of their yearly income (Dollars and Sense).
Credit card companies make it is very easy to get into debt, but almost impossible to get
out. The problem being that if you only make the minimum monthly payments (which most of us
do) you will never got out of debt. There are many ways to start getting out of the hole and
paying off your credit cards. Below is are seven steps to financial freedom:
1. It is very helpful to see what you owe on paper. Take a sheet of paper and list the months
of the year at the top. List each of your credit cards along the left-hand side and leave a space
afterwards for the following items: Payment amount, interest paid, interest percentage and total
owed. Under each month, enter the amounts that apply to each card. At the bottom, add up your
total payments, total interest paid, and amount owed. What makes this even easier (this is what I
did) is to put these items in a spreadsheet program so you can modify the amounts each month.
2. The total amount that you are currently paying (even if it’s the minimum amount) will be
the lowest amount you continue to pay until your debts are paid off. This is your “goal” amount.
As you pay off the balances, the total minimum payments will get lower, but the total you pay will
3. Once you’ve determined the total current payment amount, take the card with the highest
interest rate. If you have several cards that have the same high interest, then choose the card with
the highest balance. This will be the card that gets paid off first.
4. Pay the minimum on all cards each month except for the “chosen” card with the highest
balance. Any difference between the minimum amounts due and the “goal” amount should be
added to the minimum amount due on the chosen card. As that card is paid off, the money you
were paying on it gets transferred to the next highest-interest card with the highest balance. You
will continue to pay credit cards off this way until they are all paid off.
5. If possible, you should try to make your goal amount higher than the minimum amount
due. Even $10 extra a month will help. It is much better to put any extra money you have
towards paying off a card with a 18% interest rate, then putting it in a bank that is only paying
you 3% interest.
6. Take advantage on credit card offers you receive offering a low balance transfer rate.
Watch for promotions offering at least six months of a low rate with no annual fee. You can also
contact your credit card company and ask then to lower your interest rate.
7. Above all else, do not use your credit cards anymore (Popeck).
The hardest part for me was not using my credit cards anymore, I simple cut them up and
throw them away. When I get paid each month I immediately write out checks and send them off
to the credit card companies. I leave myself about twenty dollars each month for play money.
So what if the damage has already been done and you have a bad credit record? The best
credit repair is time and a debt repayment plan. All of us have seen the advertisements on TV, in
the newspapers, or on the Internet: “Credit problems? No problem”, “We can erase your bad
credit 100% guaranteed.”,”Create a new credit identity legally.”,”We can remove bankruptcies,
judgements, liens, and bad loans from your credit file forever!” These are all lines that companies
use to entice consumers to pay up-front money to “fix” their credit.
If you decide to respond to a credit repair offer, beware of companies that:
Want you to pay for credit repair services before any services are provided,
Do not tell you your legal rights and what you can do for yourself for free;
Recommend that you not contact a credit bureau directly;
Suggest that you try to invent a “new” credit report by applying for an Employer
Identification Number to use instead of your Social Security Number; or
Advise you to dispute all information in your credit report or take any action that
seems illegal, such as creating a new credit identity; if you follow illegal advice and
commit fraud, you may be subject to prosecution.
Under the Credit Repair Organizations Act, credit repair companies cannot require you to pay
until they have completed the promised services (Credit Repair: Self Help May be Best). If a
person has had a problem with a scam credit repair company, they can file a complaint with the
FTC by contacting the Consumer Response Center by calling 202-382-4357.
No one can legally remove true facts that have been filed on your credit report. In fact,
negative reports are kept on your record for seven years before they drop off. But the law does
allow you to look over your credit report and dispute anything that is inaccurate or incomplete,
and there is no charge for this. Everything that a “Credit Repair” company can do for you, you
can do for yourself at no cost. According to the Fair Credit Reporting Act, you are entitled to a
free copy of your credit report if you’ve been denied credit, insurance or employment within the
last 60 days. If your application for credit, insurance, or employment is denied because of
information supplied by a credit bureau, the company you applied to must provide you with that
credit bureau’s name, address, and telephone number. You can dispute mistakes or outdated
items for free. Ask the credit reporting agency for a dispute form or submit your dispute in
writing, along with any supporting documentation. Do not send them original documents (Credit
Repair: Self Help May be Best). If there is an error found in your credit report, you can request
that a copy of your updated report be sent to anyone who has received a copy of your credit
history within the last six months. Job applicants can have corrected reports sent to anyone who
has requested a credit report for employment purposes within the past two years.
Even if you don’t have a bad credit history, it is a good idea to do your own credit check-
up, especially if you’re planning major purchase, like a home or a car. A person is entitled to one
free report a year if they can prove that: they have been unemployed and plan to look for a job
within 60 days, they are on welfare, or that their credit report is inaccurate because of fraud
(Credit Repair: Self Help May be Best). There are three large national credit bureaus that supply
most of the credit reports, they are:
Experian Equifax Trans Union
P.O. Box 949 P.O. Box 740241 P.O. Box 390
Allen, TX 75013 Atlanta, GA 30374 Springfield, PA 19064
1-800-682-7654 1-800-685-1111 1-800-916-8800
You can contact one of the above companies and get a copy of your credit report. If you get a lot
of annoying credit card offers, a call to one of the above companies will get your name removed
off the credit card mailing list for two years or permanently.
A person does need one credit card if he is going on a trip, or just for convenience
purposes. You can’t get an airline ticket, rent a car, or reserve a hotel room without a credit
card. So how do you know which one to get? Chances are that you’ve gotten your share of
“pre-approved” credit cards with low introductory rates and other benefits. Most of these cards
urge you to apply immediately before their offer expires, but your best bet is to shop around.
When looking for a good card you should ask about the following terms. Annual Percentage
Rate, or APR. The APR is a measure of the cost of credit, expressed as a yearly rate. All credit
card companies must disclose the APR before you become obligated on their account. The card
issuer must also disclose their Periodic Rate–the rate applied to your outstanding balance to
figure the finance charge for each billing period. Free period, the amount of time you have to pay
your balance in full before the due date. Something that more and more card companies are doing
is reducing the grace period, so that if you delay sending your payment even a few days after you
receive the balance in the mail, it will arrive late and you can be charged late a fee. Annual fees,
the amount of money you have to pay for the privilege of owning their credit card. These fees are
often found on “gold” or “Platinum” cards and can be upwards of $100. Transaction fees. Many
cards charge you for cash advances, late payments, or exceeding your credit limit. This is where a
credit card company really can get you. Late charges are around $25, cash advances are double
what the Periodic Rate is, and some companies have a minimum charge on the card whether you
use it or not (Choosing and Using Credit Cards).
You should also know the balance computation method of the card you want. The
Average Daily Balance is the most common calculation method. It credits your account the day a
payment is received. To figure the balance due, the issuer totals the beginning balance for each
day in the billing period and subtracts any credits made to his account that day. While new
purchases may or may not be added to the balance, depending on the plan, cash advances typically
are included. The resulting daily balances are added to the billing cycle. The total is then divided
by the number of days in the billing period to get the Average Daily Balance. Adjusted Balance
is the best method for card holders. Your balance is determined by subtracting payments or
credits received during the current billing period from the balance at the end of the previous
billing period. Purchases made during the current billing period are not included. The method
gives you until the end of the billing cycle to pay a portion of your balance to avoid the interest
charges on that amount. Previous Balance, the amount you owned at the end of the previous
billing period (Choosing and Using Credit Cards). At the end of each credit card statement you
get in the mail there should be an explanation and breakdown of how your interest rate is
calculated for that billing period. One billing method to watch out for is the Two-cycle method,
where a credit card company may only charge you 10% interest, but it is calculated twice a month
which would make it 20% interest.
As more enticing offers are made to the American public and more competition for our
credit card business lowers introductory interest rates and offers, credit card companies will think
up better ways of getting money from us through higher late fees, and other charges. The
consumer will really have to watch the fine print. If a person can control his spending habits and
pay his credit card off each month, then having a credit card is not a dangerous habit.
Choosing and Using Credit Cards, http://www.ftc.gov/bcp/conline/pubs/credit/choose.htm
Credit Repair: Self-Help May Be Best, http://www.ftc.gov/bcp/conline/pubs/credit/repair.htm
Dollars & Sense, Nov-Dec 1998 v0 i220 p21
People Weekly, Feb 17, 1997 v47 n6 p69
Popeck Cindy, Countryside and Small Stock Journal; Waterloo; Mar/Apr 1999