Salvation by Credit Card?

This column also ran on UPI’s Religion and Spirituality Fourm

Last week, on November 24, 2008, the Federal Reserve pledged to infuse 800 billion dollars into the United States’ economy in an effort to jump start the nation’s credit markets.

Let me be the first to admit that I don’t know a whole lot about the economic principles driving the world’s current financial woes, and for that reason I have a hard time forming an opinion about the various stimulus packages being proposed and adapted. I’m glad there are people out there who know a thing or two about monetary sums that for me are objects of feeble speculation. From where I sit, 800 billion dollars might as well be Sasquatch. Reasonably sane and trustworthy people tell me that both exist, though I’ve never seen either one, and I’m not sure how either would interface with the world I inhabit.

This much money is a make-believe sum. I rather doubt that 800 billion dollars worth of money ever has been printed. After all, with 800 billion paper dollars you could make a stack of money more than 54,000 miles high. With 800 billion dollar bills you could wall-paper our entire planet and with the money left over you’d still be richer than Bill Gates.

Of the 800 billion dollars of what amounts to Monopoly money 200 billion is earmarked to help encourage consumer credit—credit card lending, auto loans, and the like. (You could count 200 billion dollars at a rate of one dollar per second by Christmas if you had started around the end of the Stone Age). This expansion of consumer debt makes me suspect that the wizards of finance are so comfortably compensated that they don’t comprehend how money works among regular people.

Among the people I know—in my community, in my church, in my family, and among my friends—consumer debt is the single greatest obstacle to financial health and wellbeing. Many Americans are up to their eyeballs in credit card debt. It may be good for the banks when Americans are shackled to their credit cards, but for individuals it is soul-suckingly awful to carry the weight of unsupportable debt obligations.

The 55 percent (or so) of Americans who are unable to pay off their credit cards each month, on average, hold thirteen active consumer credit lines (including car loans and other non-mortgage debt) and owe more than $16,000. This is a great deal for the lenders. The victim of revolving consumer debt must make payments on each account and cannot, therefore, afford to pay much more than the interest on any one debt. The principal is never retired and the borrower ends up paying the lender far more money than ever was borrowed. It is a trap. The lenders get rich on what essentially is free money, while the borrowers lose their freedom and watch their options for life dwindle and fade.

There is no question that the economy needs a good bit of fixing, and a big part of the repair work will have to be directed toward banks and other financial institutions so that investment dollars will flow toward the businesses and industries that keep Americans employed. It is unjust and therefore immoral, however, to rescue banks at the expense of American credit card users, most of whom are working class or poor, many of whom are young and unfamiliar with the workings of a household budget and unpracticed in the arts of saving and restraint.

Those who deal in dollar amounts as high as 800 billion should not have their already considerable wealth preserved by adding more weight to the debt load that rests like a millstone on the shoulders of America’s less fortunate citizens. It simply is not just. That much I know.

17 thoughts on “Salvation by Credit Card?

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  6. getting out of credit card debt can be so hard. start here: Make it a regular practice to call your credit cards to ask for a lower rate. I have one client who owes over $20,000 on a Visa that was at 18%. He spoke with a ‘rate specialist’, touting his rising credit score and declining balance and got his rate cut in half, from 18% to 9%! His monthly interest charge was instantly reduced by $150, which will help him pay off his debt even sooner.

    And once you pay off those cards, throw them out if you aren’t confident that you can pay them off each month. There is no salvation to be found for most people in the credit card.

  7. Thank you, SFFP. I like the advice. I didn’t know that such “rate specialists” existed.

    The strategy for paying off credit card debt and student loans that worked for me and my wife was this: pay off one debt at a time by adding a little extra over the minimum payment on just one debt. When that debt is payed off, take all of what you were paying on that debt each month and use it to pay off another debt. Start with your easiest debts to pay off and work your way up. Doing this, most people can pay off their consumer and student debts in three to five years.

    While we were paying off our debts we put our credit cards in a tumbler full of water and put it in the freezer. The idea was that we had to thaw out the cards to make them usable, and while they were thawing we had to try to come up with another solution. We never had to thaw out our cards. Today we have debit cards and a basic American Express card which is not set up to carry a balance.

    Ben

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  9. Well Ben,
    I certainly have much sympathy for folks caught in the credit card hype game – its malicious.

    But you might want to check your facts before speculating. We are not talking about “Monopoly money.” In a nation of over 350 millin people and a world populated by billions of people, $800 billion is not all that much – certainly not to be dismissed as imaginary as you did. Oh yes, much more than $800 billion has been printed by the U.S. Treasury. It prints more than $750 million every day, and according to the Federal Reserve Bank, in 2007 there was over $829 billion in paper money in circulation on any given day. Of course that number is dwarfed by the money held in bank accounts, and even that is again dwarfed by other intstruments of investment.

    And finally, making money available to borrow does not force anybody to borrow. That is a personal decision people make. I think I might like to replace one of my 10 year-old cars next year, and the tight credit markets make that hard right now. I don’t think a bit of stimulus to the credit markets allowing me to make a responsible decision next year is all that bad.

  10. Ben,

    Thanks for the insightful article. You hit it right on, although I agree with the guy above, people need to be responsible. I wish the government did more to incentivize saving…and when people save, that stiulates the economy too, doesn’t it (even if they just put it in a saving’s account, the bank benefits).

    I think we in the church should teach regularly about finances—along with stewardship. We tend to think of stewardship as a way of raising the church’s budget, but it should be about the issues you discuss, how people can be good stewards of their money in a world that can easily encourage poor stewardship.

    Stephanie

  11. John,

    Your point is taken, but I would feel a lot better about the stimulus package of there was some oversight exercised so that credit was only extended to those who can afford it. (Maybe such language is written into the deal, but if it is it was not mentioned in the reports I read).

    It’s great if people like you and me can get affordable loans to buy cars. Good for everyone from the consumer to the UAW member in Detroit. But I’ve also seen people’s lives torn apart because easy credit led to an unwise automotive purchase, and while its easy to say that the fallout of the bad loan is the just deserts of the fool who took out the loan, it often is the case that the fool’s family and the broader community suffer as much or more than does the fool.

    Your remarks about my treatment of the size of the bailout package make me feel like the comedian who does his stand-up act and no one laughs. That was me attempting to express humorous amazement at the size of the package. Oh well. You cannot win them all. Or at least I cannot.

    Stephanie,

    After Anne and I attended a seminar on getting out of debt, we invited the seminar presenter to come to Foothill to do his seminar at the Church. It was a really good experience for everyone. Unfortunately, I’ve lost track of they guy who did the presentation, and I cannot find him on the web, but Anne and I have talked about presenting the class based upon our own process toward retiring consumer debt.

    Ben

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  13. Unfortunately I think those who can’t take care of their temporal lives won’t really take care of the spiritual.

  14. H–

    I cannot speak for everyone on this, but I know that my own journey toward freedom from consumer debt has been a journey of spiritual awakening. The sense of spiritual freedom is of greater importance than is the financial security. In part this is because I don’t owe any part of myself to a credit card company and in part it is because my attempt to live a debt-free life has caused me to lead a simple lifestyle, which has definite spiritual benefits–fewer toys means more time for pursuits such as reading and writing, as well as more quality time with my loved ones.

    I’ve also worked with my church to be debt-free. When I started working here we had a sizable debt from a building project. I was able to get the church to pay it off early, and subsequent projects have been funded through special appeals, saving ahead of time, and by borrowing from our endowment so that we act as our own bank–paying ourselves back with interest so that we function in a debt-free manner and our endowment grows at the same time. It has been good for the whole congregation spiritually as well as fiscally.

    Ben

  15. Ben,
    I think, speaking politically, I’m almost -not quite- as progressive as you. And it is as a progressive that I push back a bit on your recent “bailout” column and comments. I believe that among the responsibilities of (good) government is the duty to create equal opporunity for individual choice and to work to minimize the barriers which limit opportunities for individuals to only those individuals with substantial financial means. Among other things, that work includes building up public education at all levels, creating a universal health care system, and finding a way to release our political system from its current hostage to big money.

    I have been troubled that the government’s role in “bailout” so far in this economic crisis has been almost entirely limited to bailing those who created it by promoting, pushing, and advertising risky loans and unsustainable individual spending. Sure, in hindsight, individuals also made poor decisions and so some are in significant part responsible for their individual plight. But while both the financial industry and consumers made bad decisions, only the industry is getting help. That’s wrong.

    I have to push back at the impression I get that you want to keep the consumer credit market tight and thus limit the financial choices of individuals just because many have made (and some may again make) bad financial choices.

  16. Thanks, John.

    I hear, appreciate and respect what you’re saying.

    Regarding your first and second paragraphs our views are not far apart.

    As for your third point, I would add a little bit of nuance. While I don’t consider a tight consumer credit market to a goal for which public policy should aspire, I would rather have a tight credit market than an economy whose health is predicated upon consumers taking out more debt. I come to this opinion in the same way I have come to believe that taxing tobacco is a bad idea because we don’t want to put ourselves in a place where we cannot afford for people to give up smoking.

    Best,

    Ben

  17. Yes I would agree with the last post. Sure their is going to be some pain in the near term, but I think a tightening of the credit belt, and a back to reasonable spending practices and discipline is not unhealthy in the long term, for both the individual families and the larger economic system in general. Disciplined spending is something both necessary for an individual and an economic system and I think we’ve seen far to little in either over the last few decades – myself included . 🙁

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