Quote:
Originally Posted by ngdawg
Unfortunately, I live on credit cards. There is simply no way to afford doctor co-pays, car insurance, dental work, etc. now. I figure our monthly outlay is about $600. I know it's a trap-can't afford even essentials, charge them, pay less than what was charged, charge again, rinse, repeat.
The banks are pretty savvy; No sooner do you make the first payment on a new card then they raise the limit. "OOO, they can afford to pay us $200 a month! Raise it again!" But that new card doesn't have any interest accruing; by the time it does, you're in it deep and that $200 put on it each month now equals maybe $90. Gotcha!
Now, here's the beauty of it: Credit scores are determined by timeliness of payment and debt to credit ratio. So, if you have a credit card with a $26k limit but only use $3k of it and pay, say $200 a month, you look great. If you have that same $26k, use it to its max but only pay bare minimum and sometimes it's a day or two late, your credit score takes a dive.
Nothing about income, nothing about debt to salary ratio. That'll come later when you get a mortgage and as long as you can afford to pay 30% of what you make, no problem.
I make $15k a year, have $23k in debt and my credit score is, as I was told, "excellent". Why? Because while the cards are in my name, my spouse makes the major salary and I pay each card (3 right now) $200 a pop each month. They don't care that it's not my money paying them; they wouldn't even care if I used card A to pay card B, long as it's done on time.
It's a 3 card monty and I keep plunking down another Jackson....  |
I've had guys (and one gal) in the industry tell me credit ratios matter even on cards. Don't know, really don't care.
I think your dead right it's a shell game and once you're in it it's a bitch to get out. I feel many people will not survive this financially. All the stuff you mention sounds like reasonable "needs," dental work, medical co-pays, insurance. But I know people who have dug this type of hole on "needs" that include vacations (too stressed, better head to Vegas, VEGAS BABY!), new surround sound (neighbors got the new Bose system, 5.1 Dolby man... awesome!), can't have the new surround sound without a new 42in. LCD HDTV (Am I right, am I right? That's right! Sony Bravia LCD HDTV, full 1080p dude!) and yadda, yadda, yadda until they're 25K+ in credit card debt and can barely afford the minimum amount each month. Then the house of cards starts to fall. They miss a payment, late fee time! Couple late fees and the bank ups the interest rate. Before they know it the amount due on the CC's more then both their car payments each month and they're only paying the minimum, which of course means all they're ever paying is the interest each month.
It's like that old song-
You load sixteen tons, what do ya get?
Another day older and deeper in debt
Saint Peter don't you call me 'cause I can't go
I owe my soul to the company store
So far all this consumerism has been a pretty sweet deal for the lenders. They've been able to administrate this whacked out game and the default rate has actually been rather low. Why? Because for the most part people have been able to find employment (not to mention the latest bankruptcy laws went their way) and have been able to keep paying their souls to the company store. Now that unemployment is starting to snowball the card house is tilting to fall on them. Fewer and fewer of their customers are able to pay those minimum payments. As the number snowballs the banks gravy train grinds to a halt. At some point, between the whack job mortgages and the insane credit limit cards, without a tax payer funded bailout the train runs backwards.
There's an old expression that basically says if you owe the bank a little the bank owns you. Owe the bank a lot and you own the bank. Well the tax payers owe the bank a shit load at this point. Now the transfer of ownership is beginning, IMHO. We're bailing out the banks and hopefully we're going to get something for all our cash (more like our children's, children's cash at this point, but that's another issue.) My guess is based on the way I've seen government work in the past we'll be getting pennies for our dollars.
Sure hope I'm wrong about that.