Beware the Dangers of “Good" Credit"!
By John W. Lillpop
As Barack Obama and the Democrats continue to spend, spend, and spend, a Day of Reckoning looms for the American people, and it is not pretty.
Take the example of a friend who is paying the price for having good credit.
Steve Evens enjoyed a modest income, good credit, and a history of being responsible and prudent in his personal finances. Life had dealt him a pretty good hand, which he enhanced with hard work and restraint.
Until, that is, Steve became trapped in the Catch-22 of credit card mania.
It started with the zero-percent financing and other attractive offers, unsolicited, from credit card companies. The offers almost promised free money, which Steve knew was pure folly, but the offers were just too good to resist.
Steve signed up for a card and then another, both bearing very attractive terms. Both had quite manageable credit limits; besides, Steve intended to pay off all balances immediately.
Then the addictive nature of credit card mania hit Steve between the eyes. Needing a new suit of clothing for his professional work, Steve decided to see what was on sale at that fashionable, but pricey, men’s store in the upper-end mall.
Normally, Steve would spend no more than $300. for a suit. That would get him a modest, entirely appropriate business suit.
However, when Steve visited that up-scale clothier, he soon discovered that $300 would get him a couple of nice dress shirts and matching ties. No $300 suit there!
In fact, a suit at that up-scale clothier would cost Steve about $1,200.
Irrational rationalization took over: Steve reasoned that this suit could help him earn that coveted promotion and a larger salary; however, Steve did not have $1,200. available to spend.
Well, he did have $1,200, but that was supposed to be for his retirement which was a mere 35 years off. Best not to touch that account.
Besides, Steve had never paid cash for such an extravagant item in his life. Paying that much in cash left him with a queasy feeling in his stomach.
The solution: Use the V card! The interest rate was 0%, and he would pay the balance immediately. Or almost immediately.
Another wave of Irrational rationalization invaded his logic: Why stress out to pay off that no-interest balance? That, he told himself, made no sense whatsoever.
At that point, Steve had unwittingly taken the first fatal step toward financial ruin.
He had abandoned his natural inclination to be modest and prudent by purchasing goods and services which he could not afford.
By using a credit card, he avoided the pain of handing $1,200 over to a sales clerk.
Plastic does not hurt, until the credit card company converts it to paper in the form of a monthly statement.
Steve’s new thinking continued to do him great disservice over the next few years as he continued to eat, drink and be merry with reckless abandon. Restraint was replaced with “CHARGE IT!” in Steve’s vulnerable state.
Financial shock and awe soon arrived when Steve was notified that the 0% interest rate promotion on his cards had expired and his account balances were now subject to a 15-18% APR.
That was just the beginning of Steve’s woes.
More shock and awe followed months later as Steve continued to “CHARGE IT!” and was now charging groceries at the local supermarket.
Using a credit card was the only way Steve could manage to buy New York steak instead of Top Sirloin. But, he reasoned, he deserved to eat well.
When the financial crash of 2008 hit, Steve discovered to his dismay, that his credit card limits, which had gradually increased over the years, were now being sliced back by the credit card moguls.
Steve’s interest rates were also raised above 20%, which of course, raised his monthly payments, which also reduced his available credit.
The final awakening came when Steve went to buy a new car from a dealer that offered 0% interest for people with “excellent” credit. Steve counted himself as one who had unmatched credit.
To his amazement, Steve was told that he did not qualify for 0% interest because his credit was not good enough!
What the hell, he shouted! His credit was unblemished—no late payments, no defaults, no tax liens, no derogatory items. Surely, there was a monster mistake.
Steve left the dealership in his old station wagon and headed to his bank in pursuit of a consultation with a credit professional.
The great awakening soon followed. Steve learned that his credit score, despite no missed or late payments, had fallen sharply due to the following:
Steve had too many accounts where his balance was 65% or more of his credit limit! Forget the unblemished record, Steve was being kicked in the groin for using his credit too much!
In fact, because of his extravagance, Steve’s INTEREST payment on some accounts damn near consumed all of the required monthly payment.
Get that? Steve’s V account, with a balance of $8,200, was being hit with a monthly INTEREST charge of $130 a month, which took the lion’s share of his required $156 payment!
Oh, the pain! You write a check for $156 and the principle on your account goes down by $26.
As the new statements now disclose, at that rate it would take Steve 33 years to retire the debt, PROVIDED he discontinued using the credit card from this point forward.
Steve was truly caught in the Catch-22 of debtor hell.
The burning question: How long before Barack Obama and the lunatics on the left lead America to a similar fate?
Posted by John W Lillpop at 6:39 AM