By John W. Lillpop
Starting in 2010, credit card companies were obligated to provide a comprehensive analysis of credit card debt to each public debtor on a monthly basis.
Each creditor is required to report the current balance of indebtedness, prevailing interest rate, and, if only the minimum balance is paid, the number of years to retire the debt, assuming no further use of credit.
The results of this new disclosure have been stunning: Families accustomed to using credit without giving the matter a second thought have discovered to their dismay and outrage that it may take 40 or 50 years to pay off a balance, depending on the debt amount and interest rate.
That is the result of compound interest which can strangle a family to financial ruin by applying the overwhelming majority of the minimum payment to interest, and applying only a small token amount to principal.
Use that credit card during the month for additional purchases or services, and the result is even more devastating.
A female associate was writing a monthly check of $200.00 to a popular credit card company for a debt amount of approximately $14,000. Given the high interest rate in effect and the impact of compound interest, about $170 Of her payment was absorbed by current period interest charges.
In other words, just $30 of the payment went to principal. All of which meant that it would take my friend 43 years to pay off that original $14,000! Again, assuming that she added NO additional services or goods!
America’s financial mess is similar to that of my friend. Soon, servicing the interest on the federal deficit will consume the lion’s share of our payments.
Politicians from both parties are guilty of ignoring the true magnitude of the nation’s debt.
Which is why Republicans were touting the $4 billion in cost cuts agreed to as part of the recently enacted continuing resolution as a big deal.
$4 billion over two weeks is a big deal? Unfortunately, at that rate the total federal deficit would actually increase over the next fiscal year!
The American people and the politicians we elect need to sober up and realize the danger that could make the US akin to Greece, sooner rather than later.
Why not implement a requirement that forces the Treasury Department to issue a monthly credit report to the Congress and the American people that reports the number of years it would take for the nation to climb out of our financial hole, given the facts as they are?
The impact could be dramatic on the behavior of politicians AND on election results if the American people were aware of the true magnitude of our current financial mess.