Times Editorial : No money left What is America to do about its credit card debt?
Posted on Monday, May 12, 2008
URL: http://www.nwanews.com/nwat/Editorial/65123/
Credit cards stink. OK, we don’t mean that. Lots of times they provide an important service. Sometimes they’re the only way consumers can finance a family trip, purchase a tank of gas, or afford gifts during Christmas. There’s nothing wrong with any of those things, right ?
In principle, no. The United States, though, long ago mortgaged its future by turning itself into a debtor nation. It’s practically unheard of anymore to find someone who doesn’t have credit card debt.
Problem is, Americans aren’t very good about paying their bills immediately. The comsumption-oriented appetites are encouraged by splashy advertising of that thing a person doesn’t really need but seems just a plastic card-swipe away. The bills begin to pile up until people are practically drowning beneath an ocean of debt. In recent years consumers have charged millions, which has translated into eye-popping profits for credit card companies.
Mind you, none of this would be the end of the world in a country where Congress is willing to look out for the little guy. Sadly, that hasn’t been the case in a long time.
Earlier this month, in response to criticism of treating the industry with kid gloves, the Federal Reserve released a series of proposals that are meant to protect unwitting Americans from falling still further into debt at the hands of credit card companies using unethical or deceptive practices to squeeze card holders. From giving borrowers more time to pay down their debts to legislating against retroactively raising interest rates on existing balances, experts say the changes (if enacted ) would be the single biggest action taken by Congress against the nation’s credit empire in decades.
The calls for change don’t end there. Senate Banking Chairman (and one-time presidential candidate ) Chris Dodd has put forth legislation that would require credit card companies to give customers 45 days’ worth of notice before any interest-rate increases go into effect; meanwhile, similar ideas have already been launched in the House of Representatives. One imagines that if a Democrat manages to win the White House this November, the credit industry will not be pleased.
Some consumers rights groups say the ideas don’t go far enough and may be too little too late to help millions of Americans. They may be right. The Consumer Federation of America places the credit card debt held by consumers today at a staggering $ 850 billion, about four times what it was 18 years ago. For what it’s worth, the same organization says that the debt for those households (about 58 percent ) that do not pay their balances in full every month is about $ 17, 000 on average.
Debt, of course, is one of life’s little necessary evils, at least when prices are what they are. To climb the economic ladder, debt in some form is almost a requirement. But there are smart ways to use credit and legitimate ways for credit card companies to make a reasonable profit that should be encouraged.
Nobody wants to undercut the nation’s credit industry. American Express, Visa and all the rest provide a valuable service. But these companies shouldn’t be permitted to serve as enablers to the unbridled consumption of cardholders. It’s harmful to the nation to have a populace so far in debt. It all will come home to roost one day, and the effects won’t be good.
Regardless of what the Federal Reserve and Congress do or don’t do, the American people ought to go dedicate themselves to the cause of ridding themselves of credit debt — and then permanently destroying most of their credit cards (and formally closing their accounts ) once and for all.
Our grandparents, those of a more practical generation, oftentimes refused to buy something until they could afford it outright. They had been taught to hate debt like the plague.
If only this generation could teach itself, and its children, a modicum of that self-control, the country would be better off for it. Perhaps being debt free is too much to expect with the growing gap between price increases and payroll levels, but living closer to one’s means should be a goal.