The Death of the Credit Card Economy

Slate ^ | August 30, 2008 | Daniel Gross

[reaganaut1]

[C]onsumer credit became so pervasive that paying cash became passé. Want a new $32,530 Dodge Ram Crew pickup? Take a lease. Sick of your old house? Get a 100 percent mortgage and trade up. Face lift? Round-the-world cruise? New PC? Three-hundred dollar sushi dinner at Nobu? Whip out that plastic. It was this behavior—the endless willingness of lenders to lend and borrowers to borrow—that kept the consumer economy humming uninterrupted from the early 1990s, straight through the brief recession of 2001, until the credit meltdown of 2007.

But many of the lenders who extended credit recklessly are now acting like a single twentysomething who, after having a few bad dates, takes a vow of celibacy. Students returning to college are finding that student loans have vanished. Retailers who freely extended credit to any customer with a pulse are deploying bean counters armed with sophisticated software to sniff out potential deadbeats. And when higher rates and fees don't deter their borrowers, credit-card companies resort to slashing credit lines. "We predicted there would be some degree of spillover from the mortgage meltdown," said Curtis Arnold, founder of CardRatings.com. "But the credit line reductions by big credit card companies in the last six months have been fairly unprecedented."

[elmer fudd]

It’s a false analogy. So the card fees cost $427 a year, but what do they save? The cards are faster and more efficient than checks, so stores, banks, etc... can hire fewer people and save money in that way not to mention not having to deal with bounced checks or waiting for a week for a check to clear.

[OCC]

If you maxed out your cards and made the minimum payment each month, they would probably have increased your credit limit to $25,000!

[Zeppelin]

If you maxed out your cards and made the minimum payment each month, they would probably have increased your credit limit to $25,000!

I know, right?!?

I have a friend who was around $9,000 in debt on his credit cards alone, and he made all the minimum payments...but he would brag about his $30,000 credit line (on a single card), which he called "good credit." I told him that the credit card companies may classify that as "good credit," but that's only b/c they're making a very sweet yield off of him!

I tried to explain to him that "good credit" should mean that (barring any extenuating cirmcumstances) you are not paying interest to anyone, or at least paying a lower interest than an investment of that cash could yield; for example, buying a car and, instead of paying in cash, investing the $20K and making the minimum payments, financed at a rate lower than a high-yield CD, or other investment., and so on and so on.

He disagreed.