This blows me away: http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2010/10/27/... "The average American ... carries $5,100 in credit card debt". No math education? Don't care? Peer pressure to buy crap? Or is that money really going to groceries and rent? I guess I live in an entitled bubble, but I really can't wrap my head around how people get in that state.
Is it relatively easy to get access to a user's credit card statements, or do you need to negotiate with each provider? Or do you just get their passwords and scrape?
Sometimes people get in this state because they have no savings to speak of and some unexpected large expense comes up. Your car breaks down. The fridge quits. The house needs a new roof. Your job downsized it's medical coverage to a larger deductible and your wife got in a car wreck.
Not everyone with massive credit debt was out there buying iPods and flatscreen TVs. The root cause (no savings) is a different story.
I can easily imagine how someone can wind up carrying a balance on their credit card via some sort of minor disaster.
What I don't understand is how a full third of the US population has managed to get themselves into that situation and not out, and are effectively borrowing money at some crazy (16%+ rate).
Some of those crazy rates come from credit card companies that have discovered that people's procrastination and forgetfulness can lead to great profits.
Miss your payment deadline by an hour? $39.99 late fee. Miss by a week? We'll crank your rate up to 29.99%. Oh, and we'll report it to the credit bureaus so they will find out and other cards you have will crank up to the default rate.
Now you've got multiple cards at the max rate. The minimum payments skyrocket. Most of that is just interest, so your principal never goes down. In fact, if you keep making minimum payments only, the balance rises until you hit the limit. It goes on and on.
There have been new laws to limit this kind of behavior from the banks, but banks are pretty clever animals. They'll find new ways to make their profit.
Most of that is just interest, so your principal never goes down. In fact, if you keep making minimum payments only, the balance rises until you hit the limit.
This is known as negative amortization, and it's not the way credit cards work. Or any loan where "most" of the payment is interest, for that matter. If you're paying any principal, you're paying down the loan. To my knowledge, credit card companies are required by law to set the minimum payment high enough that some principal is paid. Of course, it's only enough that you won't finish paying them off for twenty years, but it is amortization.
Not using the card, its gone in the shredder after I maxed it out to pay for back surgery. But without a doubt the balance goes up every month. I'm not a computer with a PDF reader at the moment but my credit card statement shows that if I continue to pay the minimum every month it'll take over 2600 years to pay off and I would have paid over 2 million dollars in interest by the time its paid off. This is for a US card as well.
Then let's clarify my hyperbole: if you make minimums, you're going to need a long long time to get out of the debt. Decades.
New laws and higher minimums are working to alleviate this problem, but if you can't make the minimum as it is, how will you do it when the minimum has doubled?
If you're not saving money you're still living above your means, because statistically, cars break down, fridges quit, houses need new roofs, and people get hurt in car wrecks. If you're buying flatscreen TV's instead of saving money for a rainy day and then using your credit card to buy a new fridge when your fridge dies, that's equivalent to buying flatscreen TV's on a credit card when you can't afford it with your salary.
Having a momentary catastrophic expense like that might require putting money on a credit card and not paying it off immediately. In the long run, though, that shouldn't cause systemic credit card debt because, just as you should have money to save at the end of the month, you should have money to pay down your emergency debts at the end of the month.
People in this situation usually end up there because that's the most debt they can tolerate - they are making payments but the psychological pressure from the debt and it's consequences keeps them from going further into debt (or from fixing the problem)
Every excuse for why people end up in debt is moot if you realize that almost every single one of those people could have had a positive cash savings had they only planned better, and not NEEDED debt.... they used it because they could.
Both the fridge and the roof are problems which are moderately expensive for low-income people to fix immediately, but which grow into more expensive problems if you ignore them. It's easy to see how the roof will be more of a problem in a few months than when you first noticed it leaking, but not having a working fridge means you can't buy food that requires a refrigerator as cheaply. Not only is it more expensive to buy smaller quantities, but you then have to visit the store more often, which uses more gas, etc. Someone on a budget is probably only grocery shopping once or twice a month, since the best deals are in bulk, but not having a place to store cold food removes that option.
Is it relatively easy to get access to a user's credit card statements, or do you need to negotiate with each provider? Or do you just get their passwords and scrape?