Why you can't bitch and moan about your credit card debt

It's a sad fact of reality that using credit cards to finance above-your-earning-capability lifestyles has become much too prevalent in our society. If someone wants a new TV they don't wait until they have the money saved up (something which would probably only take them a few months), they just stick it on the credit card. Some people don't like carrying cash, so they stick everything from groceries to lunch at McDonald's on their credit cards. 

The "learned" elders in our society (baby-boomers) tend to keep a credit card around for "emergencies". The last thing you want in an emergency is to stick a couple of thousand dollars on a high interest credit card. The real learned elders (the ones who grew up during the depression) know the importance of not financing your goals, and that you should pay with cash whenever possible. 

I saw a story on CNN about a woman who's Bank of America credit card's interest rate was raised from 12.99% to 30%. This angered her so she made a Youtube video about the audacity of them doing such a thing. 

Here are some of the things that she listed as being wrong:

1. Raising her interest rate without prior notice
2. Not being willing to negotiate a return to the previous rate
3. The bailout going to banks who charge large interest rates for loans
4. The banks charging high interest rates when their interest rate with the Fed is 0%

I agree with her point about the bailout. We never should've passed it. But her other points are utter rubbish.

Here's a congealed list of what people hate about credit cards. 

1. The high interest rates
2. The changes in interest rates without notice
3. The changes in minimum payment percentages
4. It's too easy to build large amounts of debt

Here's the scoop. When you get a home mortgage you can get low interest rates if you qualify. Rates of 5% aren't uncommon. When you get a car loan you can get a rate lower than 5% if your credit is good enough. You can get these lower rates because the loan is collateralized. Your mortgage is collateralized by the house, and your car loan is collateralized by your car. If you stop paying on the loan, the bank has something to recoup some of their lost capital. Banks aren't boogeymen for taking a house that collateralized a loan that was never paid. The people are boogymen for not paying the loan. Contrary to popular belief banks will work with you if you're going through a hardship. 

Credit cards are unsecured debt. They are not collateralized by anything. If you loaned a friend $300 for a new Playstation 3, wouldn't you want to have the PS3 as collateral? If your friend stopped paying you, you could just take back the PS3. But if you let them borrow the money without a clause that said you would get the game system, wouldn't you want a little extra for the risk you're bearing? Maybe an extra $25 dollars for your trouble. That's why it's okay for credit card companies to charge you more in interest. 

The credit card issuers will put in the contract booklet you receive before you activate your card a clause that will state that they can raise the interest rates whenever they want without warning. If you don't like that rule, don't activate the card. 

When a bank raises the minimum payment percentage it really can hurt people, but only the people who are dumb enough to have a big balance and to only pay the minimum every month. If you're carrying $10,000 on your card and the minimum monthly payment is 2% of the balance, you'd pay $200. Banks have been known to raise that to rates such as 4-5%, so that would mean that you'd be paying $400-500 per month without notice. Now, there should be some notice of this, I'm in agreeance there. But again, it's unsecured debt. You're the risky party. 

It is easy to build up a large bunch of debt with credit cards, but that's not the bank's problem. That's a problem of personal responsibility. If someone can't trust themselves with a credit card, they should not apply for one. It's not the bank's fault you reached your credit limit by with beer, a new flat-screen, and a gaggle of internet porn charges. 

Not there are some reforms that need to happen in the credit card industry. Universal default is an evil tool of the devil. Universal default is when the issuing bank learns that you were late on a payment (could be an old car loan, student loan, etc.) so they raise your rate. Keep in mind that these late payments had absolutely nothing to do with your ability to pay your current credit card. The missed payments in question could've been over ten years ago, and they could've been settled. 

There's been some talk lately about raising the age at which you can acquire a credit card to 21. I think that's a horrible idea. If people aren't ever allowed to make their mistakes then they can never learn the valuable lessons that come with it. 

Bank fees are out of control also. There are so many that it's hard to keep straight. They sneak them in for the most ridiculous reasons. I'd love to see some reform in this area. 

Moral of the story, if you have credit card debt, don't whine about it. If you have credit card debt from an emergency, I feel for you, but that's why we have emergency funds. If your bank just raised your interest rate, consider it an opportunity to pay off the balance, instead of sitting there with you arms crossed, sniveling about it and calling them names. 

Aye, the moral of the story is personal responsibility.