Wednesday, 9 November 2011

The inescapable credit.

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?

17 comments:

Anonymous said...

Nail on the head.

cashtwentitoo said...

i'm mighty surprished you can notish such delicate finanshal detailsh after all that abshinthe 'n whishky, leg-rion? my god, you're shuch a fuckin' well-organished bloody goody-two-shoosh, eh? an' i thought that theshedays interesht dodging cuntsh like you washn't allowed credit-cardsh unlesh you coughed up the exshtorshionate mandatory maintenansh flea?

subrosa said...

In answer to your question LI it's "not me".

That doesn't mean to say I'm smart with debt, but that I'm good a sums.

karl heinz rumplenicke (one degenerate variety) said...

nein, i am nicht 'up' vor zat 'game' mein lieber leg-iron, aber i am certainly 'up' vor zer vorthkommen game versus en-gland, even zo i am kein spaniarder. mein gott, why nicht schedulen ein game betzwischten engerland und deutschland am elf/elf in wemberley? im prinzip, habe ich kein objectzionable positzion zum pansy-decoratzion, aber obviousichtig mussen wir deutschen be permissioned zum eisenkreuztragen, mit optioneller logomoglichkeit von einem kleinen aber tastevollen fabrikierten hakenkreuz. donnen und blitzen, was eine tolle idee, oder?...konnen wir marken zer historischalische x-mas truce mit einem celebratzionishen und gemutlichen paintballspiel same- timelisch graben zer chanze zu honorieren von zer europaische ger-mineshaft...und so killen zwei burden mit einem stein. jawohl.

angela gripeon said...

02:01

yes, karl, and while we're in the mood for remembrance of those olduns who've sacrificed their lives in order save the government a bob or two, maybe we could line a few nhs doctors and nurses up against the perimeter wall of the local health 'trust'...

the first african-american suicide-president said...

02:01

an how about lettin israel and iran annihilate one-another in aid of everlasting world peace - i hear they've both got unconventional back-up apocalypses already in place should either of them be a bit tardy on the old nuclear trigger...

...those israeli guys really are a bunch of mad-motherfuckers, ain't they? like a laugh tho'....

...can't wait for the next war, hillary gets so fucking horny...

and now for my next trick - how to leave my office, the economy (and most of central washington)...in a pile of indiscriminate rubble.

demostos dave - deals with 99 per cent of all known crusties, and corrupt dictators said...

02:54

oooh...sounds like great frazzling fun for all the family...

...but unfortunately at the moment i'm too busy dealing with all these fresh-air-loving fellers who insist on asserting their irritating right to carry on camping wherever they damn well please...

...it's just not on my dear chaps...

...unless your name's fox or hague, of course...

libya - the last line of dealiberation said...

03:23

please try not to get involved in the next war, dave...it sounds like it's gonna be quite a big one...and could get rather rough...i think the illegal rave outside st paul's is probably the least of your worries...in fact, with nuclear technology becoming about as widely available as dodgy double-standard democratic values (as distributed by obama, sarkozy and cameron corporate advertizing co), i reckon that anti-western winds of discontent will not only wipe away the incongruous congregation of commie-campers, but also the cathedral of capitalist corruption, the city, and most of us too.

Ben said...

I think the minimum payment has to cover that month's interest. But on credit cards the first month is usually interest free, so if you pay off the whole balance every month, there is no interest.

Try paying just a fiver, you will see that next month the minimum payment will include the interest.

A bit to early for conspiracy theories, in other words.

Dick Puddlecote said...

"The perception that only criminals deal in cash is fast taking hold"

Indeed. So much so that Louisiana have banned citizens from paying in cash, it's the criminals' currency now.

microdave said...

My last 2 statements were for £312.60 & £230.75. The Minimum payments were (respectively) £6.25 & £5.00

I always pay the full amount each month by direct debit, as the funds are in my building society current account. Years ago when they were paying several% interest, this meant that I was actually working the system in my favour. Now it's hardly worth it...

The credit card companies don't like customers such as me, since they don't make anything, and the usual ploy is to keep bumping up your credit limit, in the hope I'll one day go over the top!

I told them to stop when it got to £4,700...

Kynon said...

No thanks, LI, I think I'll pass on that particular game. I'll just continue to pay down my existing debts (not many, and very much manageable). Living within your means is such a simple concept...

(Also - I aten't dead, just been on holiday for a while.)

Macheath said...

Microdave, you're probably right about their reasons for upping the credit limit - though it's hard to see why a previously reponsible consumer would suddenly embark on a frantic spending spree when confronted with a figure of several thousand.

However, like the proverbial million pound note, it's not so easy to spend. My last car cost amost exactly the unused credit limit on my card (not that I'm rich; it's just a cheap car) but the dealer wasn't having any of it - bankers draft or cheque only - despite happily accepting credit cards for servicing or repairs.

The reason, of course, is the cost to the retailer of credit card transactions (usually between 1% and 3% plus fees) - the card companies have profited greatly from the increasing ubiquity of card payment even before interest charges are taken onto account.

karl h said...

02:01

mein entschuldigungungs, it has been notified zu me zat mein grasp von zer germlish pidgeon creole speech ist nicht spotless:

'tastevollen' ist (anglebidgly) total ungrammatische codswallop und zer korrekt wurde ist 'tastevollig'. i am also believing zat zer sind ein paar 'von's which i habe slippen in falselich mit dative conjugatzion - pardon mein pidgeon, zer shoulde habe no 'von's been, just simplich ein genital constructzion. arschen up.

Edward said...

I have to take issue with your friend's statement on the lottery: "your chances of winning increase if you buy a ticket, but not by very much".

By buying a ticket, your chances increase infinitely, relatively speaking. If only because "sweet f. a." is infinitely more, relative to "zero"

Fausty said...

Totally agree, L-I - let's not feed the beast!

Coincidentally, I finally paid off my credit card this week and cancelled the damned thing.

I had to call three times to get it done though - on the first two occasions, they told me, their processing facility was down.

Anyway, after the final call, I went online to make sure that the card had disappeared from my account listing. It had.

But the next day, it was back, with a £1.49 balance!

After a further two calls, they assured me that the "error" had now been dealt with.

Is my bank really that inefficient?

Anonymous said...

No your bank is exactly the same as mine.. I have tried and failed to close my credit card. In the end I gave up, thinking it might be useful someday. I checked the balance the other day £4 is now £20.. Now how is it these banks ever lose?

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