Credit Cards An American Way Of Life


Credit Cards, An American Way Of Life Essay, Research Paper


April 21, 1999

Kevin L. Thompson

English 201

Amil Quayle

Credit cards are quickly becoming a major problem for the American people. It is so easy

to get into debt with a credit card, and anyone with a mail box and a pulse can get one. Many

Americans can’t get out of debt and they run into credit problems; some even file for bankruptcy.

The reason it is so easy to use a credit card is that when you use plastic instead of cash, you spend

more because you don’t emotionally register the pain. If you lay down $50 at lunch, you’ll notice

if it’s a $50 bill. With a credit card, you don’t even realize what you paid.

The typical American carries five to seven credit cards with an average balance of $1,670

per card (People Weekly). Banks are pushing the credit card to consumers in an effort to make

money on the interest rates and various fees that can be charged. Since the early 1990’s, banks

have upped the credit limit on customer’s cards by more than a third, and sent out another three

billion offers in 1997 alone (Dollars and Sense). The new targets for these credit card companies

are the low income household families. While only 20% of poor families had a credit card in

1983, 40% did in 1995. Their balances were higher than ever, exceeding $1,300 on average in

1995, up $700 from 1983. The reason these credit card companies are focusing on the low

income people is that once they are in debt, they can only afford to make the minimum payment

and therefor can never pay off the balance of the credit card. For example, it would take 34 years

to pay off a $2500 balance if a person just paid the banks suggested minimum payment.

The middle class is also going further into debt. Credit card debt rose 23.5% from

January 1997 to March 1998. Sixty three percent of all U.S. households now owe money on their

credit cards, and last year they spent $70 billion in interest charges and fees. Credit card debt

now accounts for 43% of all consumer loans and is growing faster than all other types of

household borrowing, including home mortgages or auto loans. The average household now

owes an amount equal to 95% of their yearly income (Dollars and Sense).

Credit card companies make it is very easy to get into debt, but almost impossible to get

out. The problem being that if you only make the minimum monthly payments (which most of us

do) you will never got out of debt. There are many ways to start getting out of the hole and

paying off your credit cards. Below is are seven steps to financial freedom:

1. It is very helpful to see what you owe on paper. Take a sheet of paper and list the months

of the year at the top. List each of your credit cards along the left-hand side and leave a space

afterwards for the following items: Payment amount, interest paid, interest percentage and total

owed. Under each month, enter the amounts that apply to each card. At the bottom, add up your

total payments, total interest paid, and amount owed. What makes this even easier (this is what I

did) is to put these items in a spreadsheet program so you can modify the amounts each month.

2. The total amount that you are currently paying (even if it’s the minimum amount) will be

the lowest amount you continue to pay until your debts are paid off. This is your “goal” amount.

As you pay off the balances, the total minimum payments will get lower, but the total you pay will


3. Once you’ve determined the total current payment amount, take the card with the highest

interest rate. If you have several cards that have the same high interest, then choose the card with

the highest balance. This will be the card that gets paid off first.

4. Pay the minimum on all cards each month except for the “chosen” card with the highest

balance. Any difference between the minimum amounts due and the “goal” amount should be

added to the minimum amount due on the chosen card. As that card is paid off, the money you

were paying on it gets transferred to the next highest-interest card with the highest balance. You

will continue to pay credit cards off this way until they are all paid off.

5. If possible, you should try to make your goal amount higher than the minimum amount

due. Even $10 extra a month will help. It is much better to put any extra money you have

towards paying off a card with a 18% interest rate, then putting it in a bank that is only paying

you 3% interest.

6. Take advantage on credit card offers you receive offering a low balance transfer rate.

Watch for promotions offering at least six months of a low rate with no annual fee. You can also

contact your credit card company and ask then to lower your interest rate.

7. Above all else, do not use your credit cards anymore (Popeck).

The hardest part for me was not using my credit cards anymore, I simple cut them up and

throw them away. When I get paid each month I immediately write out checks and send them off

to the credit card companies. I leave myself about twenty dollars each month for play money.

So what if the damage has already been done and you have a bad credit record? The best

credit repair is time and a debt repayment plan. All of us have seen the advertisements on TV, in

the newspapers, or on the Internet: “Credit problems? No problem”, “We can erase your bad

credit 100% guaranteed.”,”Create a new credit identity legally.”,”We can remove bankruptcies,

judgements, liens, and bad loans from your credit file forever!” These are all lines that companies

use to entice consumers to pay up-front money to “fix” their credit.

If you decide to respond to a credit repair offer, beware of companies that:

Want you to pay for credit repair services before any services are provided,

Do not tell you your legal rights and what you can do for yourself for free;

Recommend that you not contact a credit bureau directly;

Suggest that you try to invent a “new” credit report by applying for an Employer

Identification Number to use instead of your Social Security Number; or

Advise you to dispute all information in your credit report or take any action that

seems illegal, such as creating a new credit identity; if you follow illegal advice and

commit fraud, you may be subject to prosecution.

Under the Credit Repair Organizations Act, credit repair companies cannot require you to pay

until they have completed the promised services (Credit Repair: Self Help May be Best). If a

person has had a problem with a scam credit repair company, they can file a complaint with the

FTC by contacting the Consumer Response Center by calling 202-382-4357.

No one can legally remove true facts that have been filed on your credit report. In fact,

negative reports are kept on your record for seven years before they drop off. But the law does

allow you to look over your credit report and dispute anything that is inaccurate or incomplete,

and there is no charge for this. Everything that a “Credit Repair” company can do for you, you

can do for yourself at no cost. According to the Fair Credit Reporting Act, you are entitled to a

free copy of your credit report if you’ve been denied credit, insurance or employment within the

last 60 days. If your application for credit, insurance, or employment is denied because of

information supplied by a credit bureau, the company you applied to must provide you with that

credit bureau’s name, address, and telephone number. You can dispute mistakes or outdated

items for free. Ask the credit reporting agency for a dispute form or submit your dispute in

writing, along with any supporting documentation. Do not send them original documents (Credit

Repair: Self Help May be Best). If there is an error found in your credit report, you can request

that a copy of your updated report be sent to anyone who has received a copy of your credit

history within the last six months. Job applicants can have corrected reports sent to anyone who

has requested a credit report for employment purposes within the past two years.

Even if you don’t have a bad credit history, it is a good idea to do your own credit check-

up, especially if you’re planning major purchase, like a home or a car. A person is entitled to one

free report a year if they can prove that: they have been unemployed and plan to look for a job

within 60 days, they are on welfare, or that their credit report is inaccurate because of fraud

(Credit Repair: Self Help May be Best). There are three large national credit bureaus that supply

most of the credit reports, they are:

Experian Equifax Trans Union

P.O. Box 949 P.O. Box 740241 P.O. Box 390

Allen, TX 75013 Atlanta, GA 30374 Springfield, PA 19064

1-800-682-7654 1-800-685-1111 1-800-916-8800

You can contact one of the above companies and get a copy of your credit report. If you get a lot

of annoying credit card offers, a call to one of the above companies will get your name removed

off the credit card mailing list for two years or permanently.

A person does need one credit card if he is going on a trip, or just for convenience

purposes. You can’t get an airline ticket, rent a car, or reserve a hotel room without a credit

card. So how do you know which one to get? Chances are that you’ve gotten your share of

“pre-approved” credit cards with low introductory rates and other benefits. Most of these cards

urge you to apply immediately before their offer expires, but your best bet is to shop around.

When looking for a good card you should ask about the following terms. Annual Percentage

Rate, or APR. The APR is a measure of the cost of credit, expressed as a yearly rate. All credit

card companies must disclose the APR before you become obligated on their account. The card

issuer must also disclose their Periodic Rate–the rate applied to your outstanding balance to

figure the finance charge for each billing period. Free period, the amount of time you have to pay

your balance in full before the due date. Something that more and more card companies are doing

is reducing the grace period, so that if you delay sending your payment even a few days after you

receive the balance in the mail, it will arrive late and you can be charged late a fee. Annual fees,

the amount of money you have to pay for the privilege of owning their credit card. These fees are

often found on “gold” or “Platinum” cards and can be upwards of $100. Transaction fees. Many

cards charge you for cash advances, late payments, or exceeding your credit limit. This is where a

credit card company really can get you. Late charges are around $25, cash advances are double

what the Periodic Rate is, and some companies have a minimum charge on the card whether you

use it or not (Choosing and Using Credit Cards).

You should also know the balance computation method of the card you want. The

Average Daily Balance is the most common calculation method. It credits your account the day a

payment is received. To figure the balance due, the issuer totals the beginning balance for each

day in the billing period and subtracts any credits made to his account that day. While new

purchases may or may not be added to the balance, depending on the plan, cash advances typically

are included. The resulting daily balances are added to the billing cycle. The total is then divided

by the number of days in the billing period to get the Average Daily Balance. Adjusted Balance

is the best method for card holders. Your balance is determined by subtracting payments or

credits received during the current billing period from the balance at the end of the previous

billing period. Purchases made during the current billing period are not included. The method

gives you until the end of the billing cycle to pay a portion of your balance to avoid the interest

charges on that amount. Previous Balance, the amount you owned at the end of the previous

billing period (Choosing and Using Credit Cards). At the end of each credit card statement you

get in the mail there should be an explanation and breakdown of how your interest rate is

calculated for that billing period. One billing method to watch out for is the Two-cycle method,

where a credit card company may only charge you 10% interest, but it is calculated twice a month

which would make it 20% interest.

As more enticing offers are made to the American public and more competition for our

credit card business lowers introductory interest rates and offers, credit card companies will think

up better ways of getting money from us through higher late fees, and other charges. The

consumer will really have to watch the fine print. If a person can control his spending habits and

pay his credit card off each month, then having a credit card is not a dangerous habit.

Works Cited

Choosing and Using Credit Cards,

January 1999

Credit Repair: Self-Help May Be Best,

February 1998

Dollars & Sense, Nov-Dec 1998 v0 i220 p21

People Weekly, Feb 17, 1997 v47 n6 p69

Popeck Cindy, Countryside and Small Stock Journal; Waterloo; Mar/Apr 1999

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