Cardholders Caught In Credit 'Trap': Report

http://www.foxnews.com/story/0,2933,292872,00.html ^ | 8-10-07

[Hydroshock]

WASHINGTON — A "dangerous cycle of debt" is trapping too many credit-card holders, making it increasingly difficult to protect their financial security, according to a report.

About one-third of cardholders pay interest rates in excess of 20 percent, according to a report from New York-based think tank Demos. Also, borrowers with one slip-up can incur a "cascade" of penalties and end up in a "trap" of high-cost debt, the report said.

"The excuse of risk-based pricing is used to justify everything. These prices go far beyond pricing for risk. Some of these interest rates and payment fees seem to not accurately reflect the risk," said Tamara Draut, a co-author of the report.

Draut criticized practices such as card issuers retroactively applying rate increases. The authors also noted that companies can change terms at will, and that there are no legal bounds to the amount of fees and interest that borrowers can be charged.

"As a result, cardholders often borrow money under one set of conditions and end up paying it back under a different set of conditions," according to the authors.

[Rightly Biased]

Debt is not a tool; it is a method to make banks wealthy, not you. The borrower is truly servant to the lender. Your largest wealth-building asset is your income. When you tie up your income, you lose. When you invest your income, you become wealthy and can do anything you want.

[Hydroshock]

It is a view that has consistently proven to help build net worth and provide a measure of financial security for your family and your self. My grandmother outlived my Grandfather. In the last 2 years of her life she was in poor shape and had to have 24 hour live in help. She had no debt, and had enough saving and investments to pay for her care without touching the principle of the investments. Her final years were as comfortable as possible, with dignity, and in her home with friends and family close by, and not in a nursing home.

[Rightly Biased]

If you take the thoughtful step backward to get on solid ground(get and stay on a budget) instead of looking at the false allure of the quick fix that bankruptcy seems to offer, you will win (get out of debt) more quickly and easily.

[jwparkerjr]

I am a professional freelance photographer. I have about $35,000 worth of cameras, lenses, computers, printers, lighting set ups, etc. It’s an expensive business to be in. Most of it was purchased using a credit card. It costs me an arm and a leg. But I knew going into it that I was taking a huge risk. I had worked for several companies who used venture capital and their experiences were terrible. Not only did they have to justify every penny they got, they had to try to explain a out-of-the ordinary business idea or plan to someone whose only skill was saying “no” to new ideas. And, if they managed to pick the right niche and the right time with the right market and the right product the venture capitalists took half or more of what the earned. I even went that route once myself. Never again.

I am up to my eyeballs in credit card debt. It takes everything I can do to make the payments and have enough left over to feel like I’m getting ahead. But at least I have the knowledge that it’s my effort that will make it go or not go.

Some days I wake up and wish I had never gotten into the rat race. But most days I wake up and thank God, literally, that I live in America and that I can risk everything I own in return for the opportunity to do what I love to do and maybe even make a living doing it.

I know this plan will get a ton of heat from those who believe in pay as you go. But that’s not my nature.

I won’t bore everyone with the stories of how missing a single payment to one company can cause the others to lower my limit and raise my interest rates. Suffice it to say I might well live to regret my risk-taking nature, but for now I’m reasonably happy with my life.

PS I’m over 65 and I a ‘retired’. You can get a feel for my work at my website: http://www.jwparker.com No nasty comments about all the kid's birthday parties, etc. If it pays I'll shoot it.

[Rightly Biased]

I use my debit card and it has all the same protections as a credit card without the intrest.

[tacticalogic]

I'll borrow money for certain things, but it has to be more of a situation of "renting money" than "buying money".

I've borrowed money to buy a used backhoe, kept it for about 2 years to do some work on the property, and sold it for a more than I paid after cleaning it up and doing some mechanical repairs. The interest on the money was considerably less than I could have rented the tractor for, or paid someone else to do the work.

[Hydroshock]

Good luck with your venture.

[Shooter 2.5]

I really don’t think some of these people get it. They try to explain they can borrow at 5% and invest at 10%. They don’t seem to realize they can eventually save investment capitol and earn that total 10%.

Instead of living in an apartment with no equity, I’m living in a house with no mortgage and the lawn needs cutting. I might as well do it before it gets too hot.

I forgot to mention. I still pay a “Mortgage”. Since I paid off the house, the exact amount I used to send to the mortgage company now goes straight into my savings account. I pay myself that “mortgage” every month.

[Rightly Biased]

I get it but I will never borrow to invest. I invest my income.Why have the risk?

Get that lawn mowed its just gonna get hotter!!

[Paulus Invictus]

Second simple rule: Never use a credit card that charges more than 10% interest!

I have taught my son this simple rule many times but he still pays 22% interest and thinks he is a winner. Some kids never learn until they are bankrupt, but old Dad won't bail him out and neither should the FEDs bail out moronic card holders at taxpayer expense.

[Shooter 2.5]

During the divorce, I knew the ex would want all the pictures of our marriage. Since the furnace was broken and it was winter, I spent a couple of months in a single room and scanning 4,000 pictures. She eventually demanded all the hard photos and albums. I have all the pictures on this computer backed with another hard drive.

The furnace was eventually fixed with both of us sharing the expense so it was cheaper that way for me. I also have about sixty really great photos that are professional grade. If I have to make any extra cash, I can always get those photos copywrited, printed and sold at art festivals.

If divorce is on the horizon or an inheritance with squabbling siblings, convert your pictures to pixels.

[dawn53]

I’m beating the system. I buy everything with a credit card that offers reward points. I never carry a balance, so I never pay interest. I get lots of “free stuff” with my reward points that I would otherwise have to pay for. On top of that, I make large purchases with zero percent for one year cards, and leave my money in stocks or CD’s to earn interest, and pay off the card by the end of the year, virtually using the bank’s money for a year, interest free.

[Porterville]

It’s called leverage... cc are just another tool.

You can heavy lift with your back or you can use a lever.... Archimedes figured this out 23 hundred years ago......

[Ronaldus Magnus Reagan]

am a professional freelance photographer. I have about $35,000 worth of cameras, lenses, computers, printers, lighting set ups, etc. It’s an expensive business to be in. Most of it was purchased using a credit card. I am up to my eyeballs in credit card debt. I’m over 65 and I a ‘retired’.

Why are you still using credit card debt with sky high rates? At the very least, you should go to the bank and apply for a debt consolidation loan which will give you a much lower interest rate. How about a home equity loan? That's a much lower rate too. Since you are 65, how about a reverse mortgage if you own your home outright? You've probably got many options to get rid of those sky high usurious credit card interest rates.

[31R1O]

Since we’re on the subject...you might get a kick out of this!

http://www.milkandcookies.com/link/41738/detail/

[Beagle8U]

“If you “have to” use plastic, I suggest a debit card. I use them for travel and the occasional convenience of ordering something over the Internet or phone. Other than that, I use cash.”

I don’t think you can rent a car or reserve a hotel/motel room without a credit card now. Everyone should have one to use in an emergency.

[FreePaul]

That’s too good. Too bad it didn’t get posted at the beginning of this thread.

[freespirited]

Until the market goes down, there are no sure winners or losers.

True, Hydroshock, but if you have a longterm perspective and invest conservatively, it is not difficult to make more than 4.75% (our current mortgage) in the market.

If I had wanted a "sure thing" when we did the re-fi I could have put the cash available to pay off the note entirely into a longterm CD at around 6% or so. Putting the money into that instead of paying off the house, and taking a 4.75% mortgage on the balance owed on the house would leave us ahead by enough to buy a nice car in 10 years.

Don't get me wrong. I am almost as conservative as you about debt. Just not quite.

[31R1O]

Gimme a break..just woke up...drinking coffee.

[Rightly Biased]

I rented a motel room and a car just two weeks ago with my debit card.

I have an emergency fund for “emergencies” and I get the interest in a money market account.