Americans Feasting On Fellow Americans!

Agreed, the current practice sucks, and once someone gets into debt this way, it's highly unlikely they'll be able to get out.

On one hand, i really feel for the people who get trapped into this situation. Once there, they're pretty much screwed.

On the other hand, i think they're idiots for spending more than they could afford to spend. They voluntarily and willingly spent the money, and now they're paying for it.

I highly doubt anyone will be able to enforce a solution from the lenders - the business is too profitable, and the government too corrupt. Instead, financial education would be much, much better. If we could educate the public, as a whole, in the dangers of over spending, i think things would improve - maybe not all the way, but still improve.

If you want a real interesting look on how to avoid typical financial pitfalls and benefit from other financial situations, try reading Rich Dad, Poor Dad by Robert T. Kiyosaki - it's been a few years since I read it, but it really got me thinking.

 

It used to be called usury and there were laws against it.

Tom

 

<div class='quotetop'>QUOTE(qbee42 @ Mar 26 2007, 08:11 AM) [snapback]412270[/snapback]</div>

Actually, there were religious edicts against it. But the rise, first of trade, and then of industry, made money-lending necessary. And once the commercial class gained political dominance over the feudal class, the church changed its position.

An interesting, and sad, side note is that for a time, Christians (but not Jews) were forbidden (by the church) from lending money at interest. But there was such a high demand for loans, and so much profit to be made by lending money at interest, that wealthy Christians would hire Jews to front for them. The Christian thereby circumvented the prohibition, and the stigma of "money-lender" was placed exclusively on Jews. The owner of the money could then be utterly ruthless, because he never had to face his victim personally, and the front man received all the resentment of the desperate borrower.

The problem today is two-fold: There are lots of people who are financially ignorant, and who want stuff NOW, and so they spend money they don't have on things they don't need, and wind up in debt up to their ears. But there are also people who are working full-time for wages so low that they cannot pay for the bare necessities. One medical emergency or accident plunges them into a debt from which there is no exit, because of their wage level.

The latter problem can be solved by civilized wage levels (which could be achieved either by good minimum-wage laws, or by universal unionization). The former problem can probably only be solved by laws restricting lending practices, and we're not going to see that in a capitalist country where Money is god, and where Greed is the official state religion.

 

unfortunately most people won't pay attention to how much it really costs to "finance" whatever they chose to purchase. and that's how they get suckered in. plastic is a large disconnect from cash in the mind.

 

<div class='quotetop'>QUOTE(galaxee @ Mar 26 2007, 12:11 PM) [snapback]412313[/snapback]</div>

You know, galaxee, that's a really good point. I find my sense of wealth is far more connected to how much cash I have in my wallet then how much I've got in the bank. I am reasonably intelligent and very analytical, but at some primitive level that cash at hand is very important for my buying decisions. Credit cards bypass that, by always giving a person cash at hand, even if they don't really have any money. It takes discipline to overcome that, and it's not easy to get.

Tom

 

I think one of the biggest things lacking in American schools today is financial education. When I was in school, the first time I got any kind of financial education is was my senior year of HS. But it wasn't true financial education. It was Economics. Sure, we all learned how to write a check and we played a mock stock market game. But we didn't really learn the basic principles of personal finance.

 

In order to bypass this problem myself, except for large purchases, it has always been my habit stop at the bank and get cash and to shop with a 'shopping-list'. I still treat myself to spur of the moment purchases if I have the cash in my pocket, otherwise not. Come to think of it, I don't carry my wallet at all, so credit cards are not an immediate option. Another major 'secret' is to set financial goals if I want a large purchase. I started saving for my Prius 3 years before my purchase. By these personally imposed standards I am able to live comfortably on what is considered 'low income' by community standards. When I bought my house (goal was to save for a down payment in 10 years, but it took 15) my mortgage was 3X my previous rent, but I knew in time rents would surpass my monthly mortgage and now I couldn't rent an equivalent house for what my mortgage is, and as a bonus, my house has increased 5X what I paid for it. I've never got a 'free' chunk of money like inheritance, law suit payout, or large slot payout, but if I did I would buy an appreciating asset, not depreciating assets like junk at the mall. In my line of work I see people who earn the community average of 5-6X my income and who show no earned interest or dividends at year end and I am incredulous. The price for instant gratification is far greater than delayed gratification. In the end we all get what we want, but some get crippling debt attached and some don't.

 

In high schools, there should be 2 years mandatory Finance classes. Just like History, English, Math, Finance.

I'd even go for 1 year as core curriculum in colleges and jr. colleges.

The farther the generations get from WWII and depression era relationships, the more people think that there is no end to the money. This country would be in horrible shape if we ever had to live like folks lived with rations and shortages like they dealt with back then. If you have grandparents who lived through that, you probably find them recycling aluminum foil for use on another dish, and washing out the plastic cups after a party. The younger generations see that as insane and leave the party early to go put another big screen tv on the credit card.

It's sobering to hear the answer to the question: How much does a new car cost? $399 a month.

How much is a 50" flatscreen TV? $72 a month.

Neither took long enough to find out they are paying high retail plus high interest.. I think the federal and state government allows this to go on because they can't afford the hiccup in the economy it would cause if people stopped buying stuff, paid off their existing debt and then saved up for their next purchase.

It's maddening when I see where people bought a bunch of stuff, piled on the debt, then default and walk away basically unhurt by it all. At most, the debt should be put on the shelf and if they ever go to check-out from Best Buy with another big screen TV, the $1400 is applied to their old debt and the TV rolled back into the stock room.

 

<div class='quotetop'>QUOTE(daronspicher @ Mar 26 2007, 01:39 PM) [snapback]412425[/snapback]</div>

I agree with this 100%! People need to understand that if they have 5000 in the bank and 5000 in credit card debt, they're effectively broke.

 

I've cancelled three credit cards in the last month, and will cancel another one as soon as it's paid off. My wife and I will keep one credit card and use it only for things that we need now and can't wait for. It's always best to pay with cash and have a savings account. Credit cards are way too easy to get these days.

Dave

 

<div class='quotetop'>QUOTE(DaveLeePrius @ Mar 26 2007, 02:10 PM) [snapback]412447[/snapback]</div>

I think there are times when it makes a lot of sense to use a credit card. As long as you never pay them 1 cent for interest, fees, annual fee, etc...

One instance, is my Discover card gives me 5% off on all my gas purchases. that's about 12-13c/gallon right now on about 1000 gallons a year in my prius, 1500/yr with my wifes driving maybe.

The minute you pay your first interest, or fee.... it's time to slice it up and go to a cash based system.

 

<div class='quotetop'>QUOTE(daronspicher @ Mar 26 2007, 02:22 PM) [snapback]412451[/snapback]</div>

Agreed - credit cards *can* be a good thing, if properly managed. Say you go to Circuity City with $2k in hand to buy a big screen TV. You could hand them the money and walk out. Of you could let them give you a credit card with a full years no interest financing, and stick the $2k in a savings account. Gain the compounded interest over the next year, then pay off the credit card a day before they start charging you interest. Suddenly your purchase actually paid you back a little money.

Of course, it's a slippery slope, and you have to have some pretty good financial record keeping to know that the $2k sitting there is effectively *not* there to avoid spending it twice.

 

<div class='quotetop'>QUOTE(galaxee @ Mar 26 2007, 09:11 AM) [snapback]412313[/snapback]</div>

I know this is true, but it boggles my mind. While I've never gone to the extreme of using only cash (I use some cash, but basically, except for groceries and small items, I went from writing checks to using a debit card) I've always known how much money I have in the bank, how much I need for basic expenses, and how much I have for discretionary items.

Like John, I always saved up for things i wanted, and never bought anything on credit. Now I can afford to buy things on the spur of the moment that once I'd have had to consider carefully, but I still know how much I have and how much I can afford to spend. I lived an extremely modest lifestyle until relatively recently, and I still live well below my means.

I absolutely cannot comprehend the thinking processes of people who buy things they cannot afford, just as I cannot comprehend the thinking processes of people who believe in the supernatural.

<div class='quotetop'>QUOTE(daronspicher @ Mar 26 2007, 12:22 PM) [snapback]412451[/snapback]</div>

I've had a credit card for a year or so (don't remember exactly) because it turns out that some transactions are considerably easier. Renting a car, for example, is much easier with a credit card than with a debit card. But I pay in full before it's due. Effectively, I use it as a debit card, and even have an order in place (an option offered by my bank) that the balance in full will be paid automatically out of my checking account on the due date, just in case I miss it.

 

funny, now that i think about it, we have one credit card account with a limit that's well over 30% of our combined annual income! that's how they enable. you've got a high credit limit and all of a sudden, bam, you're rich! you can afford anything! get another couple of those babies and you're set.

of course, for our case, it just makes the balance to credit limit ratio extremely small.

 

<div class='quotetop'>QUOTE(daniel @ Mar 26 2007, 11:53 AM) [snapback]412475[/snapback]</div>

now you've gone too far, drawn a line in the sand, spent too long on the mountaintop!

 

<div class='quotetop'>QUOTE(DaveLeePrius @ Mar 26 2007, 03:10 PM) [snapback]412447[/snapback]</div>

You should keep your old cards and just not use them. Having old cards increases your FICO score and reduces the amount you have to pay for things that you do finance.

I have cards and use them all the time. I pay off the balance in full every month...no matter what. I earn money from the creditcards $320 a year from my Kroger card and $60-100 from my Discover. I never pay intrest or annual charges. My FICO score is 819.

When I bought the Prius the salesman laughed and said, "Mr Buttster, would you like to buy the dealership? Because,with your FICO score, you could". I financed 100% but I plan to have that loan paid off in about a year. I hate paying intrest. I am trying to pay cash for everything but I am just not there yet. But soon.

Paying intrest is a way to have less.

~buttster