The bill for my credit card arrived today. Not an issue in itself, there's never a vast amount on it and I almost always clear it at the end of the month. I remember all those calculations showing that if you pay just the minimum, then you can take decades to clear even a small amount because of the huge interest rates on these things.
What caught my eye this time was that the minimum payment is just five pounds - again, nothing special there, it usually is just five pounds - but that if I don't clear the account, next month's estimated interest is just over seven pounds.
This means that all those calculations showing decades to clear the debt are wrong. If I were to pay the minimum on this card, I would not even clear the interest and even if I never used the card again, next month's bill would be a little higher.The next one would be a little higher still if I again paid the minimum and in ten years' time, this modest card bill would have grown into a vast millstone of debt even if I never used the card again.
I was under the impression that this sort of thing had been stopped, that credit card minimum payments had to cover at least the interest on the debt. As it is, this kind of repayment/interest combination cannot, ever, be cleared by paying the minimum amount.
It actually doesn't matter to me because I restrict my card use (mostly internet and regular bills like insurance) and prefer to clear it as soon as the bill arrives. However, I know many people who use their cards all the time and rarely bother with cash. I have been in Aberdeen long enough to have been infected with thrift so I check these numbers. Few bother.
A regular card user who finds times getting tight might not notice this sneaky trap. You'd only notice if you didn't use the card between one month and the next. If there are other purchases on the next bill then that little bit of interest that wasn't covered by the minimum payment might go unnoticed. That sneaky little amount could build up in the background.
Sure, applying common sense, if times get tough the first debt to clear is the credit card and it's also the first payment method to stop using because if you get to where you can't clear it at the end of the month, the interest on those things is scary. Many people are now in the habit of using them almost all the time since few places will take cheques any more and carrying large amounts of cash is risky - and not just from the criminals. If you are found to be carrying a lot of cash, you are immediately suspected of being Up To Something. The perception that only criminals deal in cash is fast taking hold.
Everyone gets used to using credit cards, times get tough, people just pay the minimum for a while in the hope that things will improve, and soon you have a huge supply of debt slaves whose homes and property you can confiscate.
I know, it looks like I'm taking that £2 difference between the minimum payment and the interest and extrapolating it to mass repossessions of everyone's home, but who remembers that rhyme that begins 'For want of a nail, the shoe was lost. For want of a shoe, the horse was lost...' and ends with the loss of an entire kingdom?
How about Granny's old saw 'Look after the pennies and the pounds will look after themselves'?
It's just two pounds. Not enough for a pint of beer or even a half-ounce of tobacco. Less than the price of most magazines and well below the price of a paperback book or a DVD. Not enough to worry about at all.
Except it's two pounds the bank has invested in you and you are paying them over 30% interest on it, along with that rate of interest on all the rest of your credit balance. If you could find a savings account that paid that rate of interest you wouldn't be in too much of a hurry to take your money out, now would you?
It also increases month by month because the interest per month is accumulating and your minimum payment is covering less and less every month. It's £2 this month but it could be another £2.50 next month and it increases exponentially after that.
Clear those credit cards. There are tough times ahead and while all you owe them is money, what they'll take is real. Your car, your home, your firstborn. They won't get those things with the first two pounds.
But wait a few years, with a few more pounds a month at over 30% interest and look again.
I have no credit beyond a small credit card bill and a heavily dented mortgage. That credit card will be clear this week. The mortgage will take longer unless I win the lottery. That's not likely unless I buy a ticket, but as a friend once said in the days when we used to be allowed in pubs, 'your chances of winning increase if you buy a ticket, but not by very much'.
Credit was easy a few years ago. Jobs felt secure and income was simply arriving every month and most of uis could be confident that it would continue. That is no longer the case. Credit is now very dangerous indeed.
Especially since it seems designed so that you can't get out of it.
Tinfoil hattery? Maybe. Let's put it to the test. I won't have any credit and you take all that's offered, and ten years from now we'll come back and compare where we are.
Who's up for that game?