Tuesday, 21 October 2008
Credit Problems Made Worse
Written by Gavin Webber
Today, we received a letter for Amy who is 19 years old and has just moved out of home. The letter was from American Express, and is an invitation to apply for an American Express Gold credit card. Just what a 19 year old university student on working part time at K-mart, really needs!
The promise of up to $50,000 of credit is a big carrot to dangle in front of a young person, who may not know better. They may be desperate for credit or experiencing hard times, but I believe that our Amy would not fall for the lure of expensive credit in these troubled times.
Get this. The interest rate is advertised at 15.99% p.a. with up to 55 days interest free. How on hell would anyone on a casual wage be able to pay off any sum over $500 within the interest free period. Once past the interest free period, the interest rate would cripple a person, especially if they only paid off the minimum payment for the month. It would take many years to pay off the principle. Here is an example. Say you borrowed $500, and only paid off the minimum payment of $25 a month. It would take 20 months to pay off the principle. That is nearly two years folks! Then, of course you would still have to pay off the interest you have accumulated on top of that which is the kicker that people don't take into account when they make a purchase on a card.
According to a simple credit card calculator I used, it would take 7 years and an extra $331 on top of the original $500 loan. That is bloody incredible. But who just purchases $500 on a credit card? According to Choice Magazine the average credit card debt for every man, woman and child in this country of $3,200. That is a record credit card debt of $44 billion outstanding as at 9 Oct 2008. That is a nice little earner for all financial institutions who issue these plastic perils!
Why would a young lady, just starting off in life be offered a scam like this? It makes me sick to think that a company, only after profits, would stoop that low. Shame on you Mr. American Express. No wonder the credit crunch started in North America if this is an example of how you market your product!
So, some friendly advice from one who knows. Don't be sucked in by a credit card company offering cheap or easy credit. It will only end up in tears (yours of course), and they will take you to the cleaners without you even realising it!
How is one to live a simple life when bombarded with all this crap? Give me strength!