The default rate for credit cards has reached 10% in companies like American Express, Capital One, and others. And looking at their delinquency rates, the credit card companies know there's a lot more coming. Debt laden consumers are now struggling just to make ends meet and finding that even the minimum payments on their portfolio of plastic can add up to many hundreds of dollars each month. When you make payments that high, in a cycle that never ends because the interest is near 30%, you eventually get into a situation where any extra spending you do inevitably must go on the credit cards. After all, you think to yourself, I paid the banks $600 this month. This new iPod can go on my Visa. But that option is diminishing month by month as banks scale back new card offers and slash credit lines to the bone. Total outstanding credit is shrinking for the first time in US history. The charge and spend party is over, and the banks see the writing on the wall in big bold letters spelling "default."
The old game was to analyze a person's income and then load them up with credit lines the banks knew they could not easily pay off if used. So customers were given generous initial lines of credit at $2000, and then this was quickly scaled up to around $5000 per card with little "congratulations" letters telling you what a good boy and girl you were, and how you deserved these three balance transfer checks that would also increase your credit limit by the amount you chose to transfer. Once sufficiently encumbered with debt, the banks would wait for the inevitable late payment, jack up the interest rate, and "bingo" you now worked for them in an unspoken 20 year contract of revolving debt nightmare.
Then they lobbied congress under Bush and Cheney to prevent people from easily discharging their debt and getting a fresh start, which has been guaranteed under US law since the time of Thomas Jefferson, who used the bankruptcy law to throw off usurious debt burdens in his own life on more than one occasion. The credit game was simply too sweet for the banks, with interest, fees, and customers for life once they were properly saddled with enough debt. In the eyes of a banker, the guy who pays off his card balance each month is a dead beat. The people they loved were customers who used credit, always carried some balance, and occasionally hit a bump in the road and paid late. This was their bread and butter customer in the credit business for decades, but no more.
The credit card reform bill is going to force banks to stop the sudden, unexplained rate hikes, the exorbitant fees, the policies of double cycle billing, and applying your payment only to the lowest interest rate balance first to prevent you from ever paying off other high interest rate balances on the account....but not until next year. The banks made sure they had a liberal grace period to continue squeezing customers until the new law takes effect. And the squeeze is on.
Customers are finding interest rates increased across the board, credit lines reduced, cards canceled. The consumer's answer, without the ability to juggle the bills by transferring balances as before, is to simply default. The banks have realized that if people are willing to simply walk away from their home in an underwater mortgage, they will have no qualms about throwing off this burdensome and unfair credit card debt as well. So the latest spin is to call the delinquent customer and offer them a deal--some banks settling the entire balance owed if the customer agrees to make a 50% payment, and some even settling for less. The banks just want anything they can get on the debt, and are increasingly willing to deal.
Of course, this means the FICO scores of millions of Americans are steadily decreasing, because again, the banks set up the scores to award higher numbers to people who used credit liberally and carried balances. In effect, the banks punish those who they cannot rope into the credit card pen, branded for life like all the rest.
After trillions in public bailout money poured into the vaults of the banks to bail them out from their massive and recklessly leveraged securities losses, this squeeze on the consumer now is just one more cruel twist of the rope the banking system has around our necks. The banks lost billions, now we pay. Consider this... If you had given the $13.8 trillion banks received in the last 6 months to US citizens instead, you could have paid off all their mortgages, car loans, credit card balances and given us all a fresh start. Or, Mr. Obama, you could have paid for every American citizen's health care, cradle to grave, for 100 years. Instead we gave it to the likes of John Thain, Ken Lewis, Vakrim Pandit and others--the too big to fail banks that created this problem through fraud, secrecy, deceit, greed and reckless policies. And the bank books still remain closely guarded secrets. The bad debt remaining there is so massive that it is hidden away and manipulated with accounting rule changes. Is it any wonder that banks are cutting deals with Average Joe to prevent further losses on their credit card game?
My advice: Never use a credit card again. Just use a debit card or better yet, pay cash. No cash? Then you just don't buy. It's that simple.
The old game was to analyze a person's income and then load them up with credit lines the banks knew they could not easily pay off if used. So customers were given generous initial lines of credit at $2000, and then this was quickly scaled up to around $5000 per card with little "congratulations" letters telling you what a good boy and girl you were, and how you deserved these three balance transfer checks that would also increase your credit limit by the amount you chose to transfer. Once sufficiently encumbered with debt, the banks would wait for the inevitable late payment, jack up the interest rate, and "bingo" you now worked for them in an unspoken 20 year contract of revolving debt nightmare.
Then they lobbied congress under Bush and Cheney to prevent people from easily discharging their debt and getting a fresh start, which has been guaranteed under US law since the time of Thomas Jefferson, who used the bankruptcy law to throw off usurious debt burdens in his own life on more than one occasion. The credit game was simply too sweet for the banks, with interest, fees, and customers for life once they were properly saddled with enough debt. In the eyes of a banker, the guy who pays off his card balance each month is a dead beat. The people they loved were customers who used credit, always carried some balance, and occasionally hit a bump in the road and paid late. This was their bread and butter customer in the credit business for decades, but no more.
The credit card reform bill is going to force banks to stop the sudden, unexplained rate hikes, the exorbitant fees, the policies of double cycle billing, and applying your payment only to the lowest interest rate balance first to prevent you from ever paying off other high interest rate balances on the account....but not until next year. The banks made sure they had a liberal grace period to continue squeezing customers until the new law takes effect. And the squeeze is on.
Customers are finding interest rates increased across the board, credit lines reduced, cards canceled. The consumer's answer, without the ability to juggle the bills by transferring balances as before, is to simply default. The banks have realized that if people are willing to simply walk away from their home in an underwater mortgage, they will have no qualms about throwing off this burdensome and unfair credit card debt as well. So the latest spin is to call the delinquent customer and offer them a deal--some banks settling the entire balance owed if the customer agrees to make a 50% payment, and some even settling for less. The banks just want anything they can get on the debt, and are increasingly willing to deal.
Of course, this means the FICO scores of millions of Americans are steadily decreasing, because again, the banks set up the scores to award higher numbers to people who used credit liberally and carried balances. In effect, the banks punish those who they cannot rope into the credit card pen, branded for life like all the rest.
After trillions in public bailout money poured into the vaults of the banks to bail them out from their massive and recklessly leveraged securities losses, this squeeze on the consumer now is just one more cruel twist of the rope the banking system has around our necks. The banks lost billions, now we pay. Consider this... If you had given the $13.8 trillion banks received in the last 6 months to US citizens instead, you could have paid off all their mortgages, car loans, credit card balances and given us all a fresh start. Or, Mr. Obama, you could have paid for every American citizen's health care, cradle to grave, for 100 years. Instead we gave it to the likes of John Thain, Ken Lewis, Vakrim Pandit and others--the too big to fail banks that created this problem through fraud, secrecy, deceit, greed and reckless policies. And the bank books still remain closely guarded secrets. The bad debt remaining there is so massive that it is hidden away and manipulated with accounting rule changes. Is it any wonder that banks are cutting deals with Average Joe to prevent further losses on their credit card game?
My advice: Never use a credit card again. Just use a debit card or better yet, pay cash. No cash? Then you just don't buy. It's that simple.
