Which is how you should feel about it. Not approaching credit with a healthy amount of respect is a large part of the reason why it's such a general problem.
Sure, in the article the first example they posted was of a person down on his luck - but that doesn't explain the epidemic of high credit card debt we've had even during boom periods. In general, I think that people just aren't good at living within their means.
Having been on my own .com rollercoaster ride, I know what it's like to have to adjust your lifestyle drastically at times to avoid going into debt. It's difficult, but downsizing your house and selling your luxury car is a lot better than the alternative of living on the edge and losing everything when life throws your the inevitable curve ball.
My brother asked me for advice, when he was in college, about whether he should get a credit card. I told him that he should, if he was confident that he make a small charge and consistently pay the bill, on time, every month. However, if he wasn't confident that he could do this, he shouldn't. He decided against the credit card.
In retrospect, I didn't give him good advice. It's not that the overall approach is a bad one, but I didn't understand or emphasize just how important it is to establish a credit history. When you're in college, credit card companies will offer you a line of credit even if you have no previous credit history. If you can charge $10 a month, and pay it on time every month, for several years… I'm not kidding, banks will lend you $750,000 to buy a house at the most favorable rates 5 years later simply based on your demonstrated ability to pay $10 a month reliably and not run up a $10,000 debt just because you can. It's a test, and it's an important one to pass - but if you aren't going to pass, don't take it (yet). You will need to eventually.
If you don't take this test and pass it, banks will at best charge you a higher interest rate that could actually cost you well over 100K over the lifetime of the loan. They might not loan to you at all.
So yeah… if you can't handle credit, don't do it, but be aware of how important it is to establish a credit history.
Credit card, new car and catalogue debt. Everything purchased is gone or broken.
I threw a lot of money into a mortgage and ended up in negative equity for 2 years as well.
This is how I learned that status and material things are not important. Unfortunately my parents taught me the opposite to this and I paid with slavery for a long time. I realised that they too are slaves to their purchases and status.
Shit happens! Everything I own is worth about £1000 now and I can afford to just replace it and go "meh".
Well credit cards are a pretty recent development. The first general purpose card wasn't created until 1966. Sure, you can trace different forms of credit all the way back to the Crusades and the Knights Templar, but credit cards are a recent invention.
If you think it about this way, the greatest generation never used credit. They saved until they had the money to buy stuff. My grandparents never had credit cards, and it wasn't until my parents were in their 40's and quite wealthy before they started using credit cards.
If anything, you should use them only to maintain your credit rating. Keep a small balance (under $100) and use them to make small purchases. That way, you can reap the benefits to your credit score, without putting yourself in a huge hole.
And even the relevance of the credit score depends on where you are and what you're planning to do with it. Where I live you can get mortgages without a credit history as they value more that you can live within your means than having a history of going over it.
Lenders do rely on a variety of factors when deciding who to lend money to but the credit score (as in FICO in the US) doesn't depend "on where you are and what you're planning to do with it".
> If anything, you should use them only to maintain your credit rating. Keep a small balance (under $100) and use them to make small purchases. That way, you can reap the benefits to your credit score, without putting yourself in a huge hole.
Don't leave the balance, pay it off every month. It doesn't benefit your credit score.
From a Bank of America FAQ [0]:
Fiction: You must carry a balance on your credit cards to build a credit history.
Fact: You do need to use your credit cards to build a credit history, but that doesn't mean you must carry an unpaid balance. In fact, your best strategy is to use your credit cards and pay off the bill in full each month so you keep your overall debt-to-credit limit low.
It's hard to know exactly goes into the credit score calculation since the algorithm is proprietary but, anecdotally, you can carry a small balance (e.g. <10% of your credit line) without it having a negative impact on your credit score.
Yes, but you're paying interest. Again, anecdotally, I've never carried a balance. I've had two loans (student loans, paid off; auto loan, almost paid off) and never carried a balance on my CCs, my credit scores (across all three) are fine. It doesn't make sense, to me, to pay more interest than you have to on something you can afford to pay off (the auto loan is only still around because I'll lose another $100 to interest over the last year of the loan, and would rather keep my cash on hand in case I need it for medical or other emergencies).
Not necessarily. For FICO scoring purposes, you may carry a balance and still never pay a dime in interest: FICO considers your balance at the end your cycle, not the balance after your due date.
For example, if I have a balance of $800 when my statement was generated, my bank is going to report that $800 to the credit bureaus and FICO will calculate my credit score accordingly. So, for this cycle at least, it doesn't matter that I pay in full before my due date (thus avoiding any interest expense), my credit report will show an $800 balance on my account. This is why it's more likely to experience big month-to-month jumps in your credit score when you have fewer accounts/lower credit lines.
I do agree with you, I think that not carrying a balance doesn't have any negative impact on your credit score.
I think there may have been some confusion on my part. When I hear "carrying a balance" I think "not paying the bill in full each month". From what you just wrote I don't think you're talking about what I imagined. If that's the case then my apologies. I just meant that you shouldn't carry a balance over each billing cycle (which would accrue some interest) which is advice that I've seen people give before.
When I was in college, and my wife and I were in hard times, we had a $10,000 credit line that we ran up to full and I've been slowly paying down. I currently pay around $70 a month in interest on it - and it was so worth it. It's so cheap now that I don't even register it as an expense today, but the value of the money was 100x to me then when I was struggling so much.
Important note: If you don't buy anything with credit, you could find yourself unable to sign up for internet service at a new apartment because you're an "unknown credit risk." This happened to me, and I would have been completely screwed if I hadn't had a roommate who did have credit. The ISP was the only service available at the apartment, and they absolutely refused to let me sign up. It wasn't because I had bad credit; I had never used credit.
From my point of view, it was absolutely crazy. I tried everything in order to persuade them to let me open an account, such as offering to pay for several months of service in advance, but their policy prohibited anyone with "unknown credit risk" from creating a new account under any circumstances.
All you have to do is get a credit card, buy all your groceries with it, then pay it off every month. Paying it off every month is the most important part. If you suddenly find yourself in a position where you have much less income, resist the temptation to use your credit card as a supplementary income.
Purchasing on credit is completely fine, as long as you actually have the money to do so. Assuming that you do, credit cards have some significant advantages over cash, notably receiving rewards for purchases that you'd make anyway, and tracking your purchases more easily.
The incredibly dangerous thing is purchasing something you don't actually have the money for, and paying for it over time, with interest.
Bankruptcy attorneys generally charge a fixed rate, and there are pretty stringent laws about what they can and can't charge.
Furthermore, the lawyer will do all further dealings with your creditors to get the amount owed cut down. If you're in the position where you can't pay your bills, you absolutely need to talk to an attorney.
This isn't true. 11 USC 523 contains a long list of non-dischargeable debts, including child/spousal support obligations, certain taxes, and debts incurred by fraud or willful injury.
It's hard to see these "millions of americans" as victims in this matter. It's almost always possible to just _not buy_ something if you can't afford it.
Don't forget these two: "Save when you can, instead of spending". And "don't have kids you can't take care of, so they don't end up starving and unable to pay for 'life-saving medical care' when they're older."
"Life is uncertain and variable. Demanding that people make choices based on unknowable futures is a bit silly."
And what about demanding that other people pick up your burden if the unknowable future impacts you negatively? It works both ways, you know.
You are 100% correct, life is uncertain and variable. And there is no way for anyone to fully anticipate the future with perfect accuracy. However, that right there is the most powerful reason that should be compelling individuals to be more careful and risk-averse. Especially when it comes to family, kids and health.
That depends what the something is. Of course you don't need a 42" TV when you can't afford it, but whether you have money in the bank or not you'll still need to eat, and travel to work.
Well, sure getting into debt to begin with doesn't make you a victim ... but there's definitely some opportunity for victimization once they go into default; it's an opaque process that most people don't know enough about up front. Think 30% penalty-APRs on your credit cards or five-figure collection fees tacked onto student loan debts. To what extent is this the real price of the risk and prices you're exposing the lenders to, and to what extent is it simply exploitation? A clear answer is hard to come by.
That depends on what it is. Food, shelter, electricity, water, healthcare, and transportation are inelastic[1] - we buy them regardless of price because we can't live without them. Whether or not we can afford them is largely irrelevant.
Also, don't underestimate change. Buying a house or a car that you can afford now is one thing, but that doesn't mean things won't change in a way that means you can't afford them in the future. Things happen that can negatively impact your income.
Reading the responses here, I think you guys are completely disconnected from the reality, because you (like me) are lucky to have a high-paid high-in-demand profession! There are people in America who go to bed hungry - and not because they overspend or manage finances poorly. Just go over at http://www.feedingamerica.org/ as starters!
The sort of debt that you're talking about goes way further than the narrow perspective that most take on it. It begins before you are even born, and I think we should all ruminate on that.
Let me elaborate a bit, despite consistently getting down mods for expressing this point of view before. The debt begins with the parents that choose to have kids when they are unsure of their financial wellness and security for the years to come of their child's growth to adulthood. i.e. People shouldn't be having kids unless they're damn sure they can take care of them till they're adults and able to take care of themselves.
>>The debt begins with the parents that choose to have kids when they are unsure of their financial wellness and security for the years to come of their child's growth to adulthood.
I'm not saying that you should have X amount of money in order to have kids. The statement is "you should have enough money to enable you to take care of your kids into adulthood, because doing so otherwise is negligent". It's not a matter of money, but about lack of negligence and burden.
>>you should have enough money to enable you to take care of your kids into adulthood, because doing so otherwise is negligent
I would phrase this as "Society should be structured such that money isn't a concern because there is a safety net for everyone to be caught in aside from the extreme cases like say that "octo-mom"[1] situation.
Huh? How many people in their 20s know for sure that they're going to be financially well off for the rest of their lives and there isn't going to be a stock market crash or some tragic event that substantially changes the economy?
I have friends who were commercial airline captains in 2000. Then 9/11 happened, and they went on furlough for a number of years and had to work places like Best Buy.
You're saying they should've known that their career was about to get upended and shouldn't have kids because of that?
I wouldn't say they have to do anything drastic, but just make sure that they have a reasonable buffer. Individuals that are in those sorts of situations have many more options available to them when unforeseen life events occur. However, much of the ladder below them is fraught with people that would be ruined if even a delicate imbalance in their lives occurred.
Those are the types of people that need to watch their actions, and count their beans carefully. They're the ones I was speaking of specifically.
For many, choosing not to have a kid means choosing not to have an abortion. So you appear to be saying that having an abortion is the moral high ground. I'm not saying that you're wrong, but I am saying that you shouldn't be surprised when people react vehemently
I don't mean to be facetious here, but babies don't just pop out of nowhere. They have to be conceived through sexual intercourse (generally). Not having unprotected sex is the moral high ground, not abortion. Let's not get into that sticky topic as it's a corner case (rape, etc).
I'm not so sure that that is the sole reason they get touchy about the topic. I think somehow people view having children as some sort of inherent "right" of being a human. Sure, of course no one should stop them from doing it. All I'm saying is that it's not very moral or virtuous to bring a child into this world that you can't reasonably take care of till adulthood.
Good point. The guy in the article didn't just go on one vacation after another and then stopped paying when his balance reached $7,000. The article clearly said he lost his job, spent time living at a friend's place, and because he didn't have another job he had to somehow survive, which meant using credit cards.
In 2008, I worked for a startup for free in hopes that it will be compensated at the end. We did achieved our goals, but the owner gave me just $5K and kept the rest for himself (he even screwed up his own bother). It's my mistake, of course, but that's not what I want to talk about here. I've started to accumulate a lot of credit card debt. Not because I was spending a lot (although having a family means paying health insurance, rent, etc. - all adding up to a pretty significant amount, which ate up my savings at the moment), but because my APR went up to well over 30% on all credit cards. I was paying over $5K a month at some point and my balance was ever increasing. I tried talking to the banks, nobody was willing to adjust, of course. I've never had a missed payment in my life till then. At one point, I went to talk to a friend, a very prominent VC in Southern California. He told me: "You're crazy! These credit cards are crooks! What they are doing should be illegal. Stop paying - it's the only way to grab their attention and negotiate!" So, I listened to him, didn't make a payment for over 6 months, then I settled on 50% of the balance and it that was the end of that chapter of my life. My point is, sometimes it's the banks to be blamed. If they've kept my below 10% APR, all would have been fun for everyone. At the end of the they after the settlement, they made the same money, but they put me and my family under so much stress, and some sent me tax documents for the difference between the balance and the settlement that was taxable income! I.e. money I've never actually got, I had to pay income tax on it! It's a big scheme, I just don't how banks get around. I'm sure there are valid use cases, but in many like mine, I was being greatly abused.
People don't wake up one day and find their wages garnished. They must have a lawsuit filed against them, be served with a summons, get a judgment against them, and finally have their wages garnished. And the money that is being garnished is to pay back the creditor for the money and/or services that the debtor received. It's called justice.
They agreed to it when they signed up for the debt. I don't get it, just because someone (corporation/rich person) has lots of money, doesn't mean that not giving them back what they gave you is okay. Not giving them back money that you took is the rip off. Is it nice? Could they be a little more compassionate to peoples' situations? Sure, of course. That's why you have institutions that help people with debt-counseling.
On the other hand, why not do what they did here. Make laws that prohibit over-burdening debt from being given to an individual.
You said that profiting from debt is alright since parties have agreed to it. I'm saying that it's not, and such agreement comes from limiting circumstances, not because it's a good practice.
So could you boil down your argument for "limiting circumstances" for me, then? i.e. X is bad because Y, etc.
Credit exists because different people/entities have different time preferences for money, which is a value differential. Sure, this can be influenced and skewed based on life-circumstance.
e.g. one of the posters in this thread noted how "10,000" in debt helped them get through a very troubling time in their life and how they're very grateful they had access to it at the time. Are you going to say that it was "not okay" that the creditor helped him with that? Are you saying that they should have given him/her the money for absolutely no reason, no profit, nothing? Are you implying that lending is okay if it's for charity? What, really, I can't even fathom how you can hold your opinion as logically consistent.
Limiting circumstances is any case when people can't pay off the debt right away. For instance when buying living property which requires them to pay it off in 30 years because of insane pricing or simply when they have consumer debt like described in this article.
Fair enough - though to me, the question is just how much of my governments efforts, resources, and monopoly on physical force I'd like to devote to getting a creditor his or her money back.
We can say to a debtor, maybe you shouldn't have taken that loan, sure. But can we say to a creditor, well, why did you make a large and completely unsecured loan to someone with dodgy credit at very high interest rates?
Creditors need to be careful too. I do agree that this sort of thing is better handled with relatively lenient bankruptcy laws, and I do understand garnishment (through force of government) will have to be one of the functions of a court.
So this is more about my general attitude, since I doubt we'd disagree much on the specifics here. I just don't have great innate sympathy to people who get upset about defaults when their business is making high interest unsecured loans to people with poor credit. They're welcome to do this, I just wouldn't want to see my government bend over backwards to help them.
Charging some percentage on the debt (interest) is in fact just compensation for the time value of money, risk, and reasonable expenses incurred while pursuing the judgement. Money isn't free for lenders, either -- until their borrowed money is returned, they're incurring recurring costs.
It's only a rip-off when they're empowered to charge interest in excess of that.
In practice it's a rip off when people aren't able to pay off the debt, because lending entities simply constantly parasitically profit from that debt.
>>And the money that is being garnished is to pay back the creditor for the money and/or services that the debtor received. It's called justice.
I wouldn't describe a big CC corp bringing a citizen to near-financial-ruin as "justice". While you are probably factually right and all the legal procedures more or less followed, this article still highlights a problem with our current system. That it drains people who are already weak. Kicks 'em when they're down.
Exactly. Justice is hardly found in making it impossible for someone to pick themselves back up. It also seems odd to sue someone who may be behind on payments, but hasn't resorted to bankruptcy court to completely eliminate those debts (save college loans, which is a whole other thing).
It's hardly surprising that people who have never been down on their luck are the first to turn a blind eye or scolding glance towards a fellow human who has fallen from grace.
I'm not advocating for people not being responsible for their debts, but I am advocating for a caring society that helps people back up, not one that puts a boot on their throat.
Also, just a personal grievance, is any bank garnishing wages from a tax payer that took tax payer money during the bail-out.
Of course the option is to not extend them credit at all so they avoid these Faustian deals. Of course, denying poor people access to credit is going to be politically unpopular.
And a financial disaster for CC companies because, let's face it, the whole credit system is significantly supported by exploitation of less fortunate people. If situations like this article describes didn't happen CC companies would be missing a lot of profit.
Almost 20 years ago I interviewed with Capital One. They were drawing graphs of people's debts like it was calculus class, and asking me to come up with strategies to maximize consumer debt.
It's a little bit on me that I didn't say "this is evil" and walk out, but I was much younger then and the job market for developers wasn't anywhere near as good as it is today.
This. The c-card companies have actuarial/mathematical models that make it possible to estimate the profitability of the debt/default/lawsuit process from start to finish - where finish can mean bankruptcy, a lien on property, or garnished wages.
Consumers don't understand that this is what they are signing up for, and the c-card companies certainly don't make it clear that defaults are a key contributor to their profitability.
There's at least one UK c-card company that charges interest rates of up 99.9% to high-risk customers. They know damn well that with a rate like that even a tiny debt is going to explode within a few months and give them the option to get a charge on someone's home, force them to sell, and pocket the original value of the debt, plus interest, plus legal costs.
>>People don't wake up one day and find their wages garnished.
Guess what? I woke up one day and found my wages garnished.
Back in the day, when my kids were little, I broke up with my wife. I kept the kids. She did not.
Due to a mix-up at child support, since I was the dad, they thought I was the one who left. So they started running up a bill. First I ever heard of it was when my boss told me to report to HR -- which threatened to fire me. I was behind in child support by over four thousand dollars.
Took over 3 years to get the state government to pay me back. Hell, I was a deadbeat dad! (And people wonder why I'm a libertarian)
But to your point, it takes two to tango, a creditor and a lender. The creditor is supposed to be the one taking the risk. That's why they charge you for borrowing money. It's not supposed to be a sure shot. Today in the states, however, the Republican-controlled Congress back in 04 passed something called euphemistically The Personal Responsibility Act or some other such horseshit and the credit card companies can chase you to the ends of the earth. Just like child support did with me.
Look, I have no problem with people paying what they owe, as long as they can pay it, of course. But with this many people getting wages garnished, and the collections agencies getting more and more draconian? The social balance is off. We're making it so if you run a credit agency and lend out money, you're guaranteed something back. Aside from who's responsible for what, that's not the way we want the economy to work.
> And the money that is being garnished is to pay back the creditor for the money and/or services that the debtor received. It's called justice.
Not even close, take the example from the article, the debtor owed 110% of the original debt (7K Vs 15K) and that is with some payments in the interim.
Is over 100% of the original debt "justice" or exploitation? With fees, fines, and other penalties rolling over (i.e. fines on fines on fines) and with no real limits, the system is set up to kick those who are down (often resulting in bankruptcy which nobody "wins").
Even if fines and fees were capped at 100% of the original debt (with only central bank interest being charged above that) I'd call that a win. I'd want to see a 50% cap ideally however (so 150%+interest has to be paid back, no more).
The profits banks make on some debt is criminal right now. They don't get away with this in much of the EU, but the EU (and members) aren't shy to regulate consumer debt.
50% interest over how many years? I never ever hold a credit card balance but even I would not be able to turn down a capped loan over decades if I wasn't getting punished for it.
"Is over 100% of the original debt "justice" or exploitation?"
Would it make any difference to your reasoning if the individual was financially illiterate as opposed to financially educated? Because from my point of view, it's neither justice nor exploitation, but agreed and consensual contract. Now whether those individuals made a good decision to get into the contract is a different discussion entirely, and is why I ask the above question of you.
It does happen out of the blue like that sometimes, though. A little over a decade ago, my biological father who lived in another state had died suddenly. Because I had been covered under his social security plan when I was a minor and had battled cancer into adulthood (resulting in a $400,000 bill), the remaining debt of nearly $100,000 ended up in my lap. The only way I found out was when my wages began to be garnished. It turned out that a judgement was entered against me in his state, not in mine, and I never got any notice of a court date. Of course, I couldn't show up if I didn't know about it (I didn't even learn of his death until months after, he had been out of my life for many years) so a default judgement was entered. The other state's court system somehow didn't have my home address but knew where I worked and how to garnish my paycheck.
After speaking with a lawyer about it, I was told it would have ended up costing me tens of thousands of dollars and years of court battles with no guarantee of resolution. I ended up filing bankruptcy not long after due to the garnishment and other factors causing me to risk losing my house, and by some miracle the federal government allowed the judgement to be attached to the bankruptcy case.
Technically it was my debt, but as a minor starting out it wasn't my legal responsibility. I went into the remission phase as an adult, and soon after all benefits stopped. A few years after that he passed away, and they came after me to recoup the balance due.
"One in 10 working Americans between the ages of 35 and 44 are getting their wages garnished. That means their pay is being docked — often over an old credit card debt, medical bill or student loan."
Think about how severe of a situation this stat depicts.
News like this really destroys the "economic recovery" propaganda that the MSM trumpets. People have no cash in hand. The income they do have is being ripped from them rapidly via debts of various kinds. The result is society-scale movement towards poverty.
Mods, please fix the title to match the article. Millions are having wages garnished over "credit card debt, medical debt, and student loans." No breakdown is given among categories.
This is a serious enough issue without misleading headlines.
It's pretty much a sort of "insurance" that then pays out your salary for X amount of time if you become unable to work for whatever reason. There are many different types/kinds of this type of thing here...
95 comments
[ 3.3 ms ] story [ 82.0 ms ] threadSure, in the article the first example they posted was of a person down on his luck - but that doesn't explain the epidemic of high credit card debt we've had even during boom periods. In general, I think that people just aren't good at living within their means.
Having been on my own .com rollercoaster ride, I know what it's like to have to adjust your lifestyle drastically at times to avoid going into debt. It's difficult, but downsizing your house and selling your luxury car is a lot better than the alternative of living on the edge and losing everything when life throws your the inevitable curve ball.
In retrospect, I didn't give him good advice. It's not that the overall approach is a bad one, but I didn't understand or emphasize just how important it is to establish a credit history. When you're in college, credit card companies will offer you a line of credit even if you have no previous credit history. If you can charge $10 a month, and pay it on time every month, for several years… I'm not kidding, banks will lend you $750,000 to buy a house at the most favorable rates 5 years later simply based on your demonstrated ability to pay $10 a month reliably and not run up a $10,000 debt just because you can. It's a test, and it's an important one to pass - but if you aren't going to pass, don't take it (yet). You will need to eventually.
If you don't take this test and pass it, banks will at best charge you a higher interest rate that could actually cost you well over 100K over the lifetime of the loan. They might not loan to you at all.
So yeah… if you can't handle credit, don't do it, but be aware of how important it is to establish a credit history.
14 years lost.
14 years lost how? Do you not have the house/item that you spent 14 years paying off? Or was it credit-card debt?
I threw a lot of money into a mortgage and ended up in negative equity for 2 years as well.
This is how I learned that status and material things are not important. Unfortunately my parents taught me the opposite to this and I paid with slavery for a long time. I realised that they too are slaves to their purchases and status.
Shit happens! Everything I own is worth about £1000 now and I can afford to just replace it and go "meh".
If you think it about this way, the greatest generation never used credit. They saved until they had the money to buy stuff. My grandparents never had credit cards, and it wasn't until my parents were in their 40's and quite wealthy before they started using credit cards.
If anything, you should use them only to maintain your credit rating. Keep a small balance (under $100) and use them to make small purchases. That way, you can reap the benefits to your credit score, without putting yourself in a huge hole.
Don't leave the balance, pay it off every month. It doesn't benefit your credit score.
From a Bank of America FAQ [0]:
Fiction: You must carry a balance on your credit cards to build a credit history.
Fact: You do need to use your credit cards to build a credit history, but that doesn't mean you must carry an unpaid balance. In fact, your best strategy is to use your credit cards and pay off the bill in full each month so you keep your overall debt-to-credit limit low.
[0] https://www.bankofamerica.com/credit-cards/education/5-facts...
For example, if I have a balance of $800 when my statement was generated, my bank is going to report that $800 to the credit bureaus and FICO will calculate my credit score accordingly. So, for this cycle at least, it doesn't matter that I pay in full before my due date (thus avoiding any interest expense), my credit report will show an $800 balance on my account. This is why it's more likely to experience big month-to-month jumps in your credit score when you have fewer accounts/lower credit lines.
I do agree with you, I think that not carrying a balance doesn't have any negative impact on your credit score.
From my point of view, it was absolutely crazy. I tried everything in order to persuade them to let me open an account, such as offering to pay for several months of service in advance, but their policy prohibited anyone with "unknown credit risk" from creating a new account under any circumstances.
All you have to do is get a credit card, buy all your groceries with it, then pay it off every month. Paying it off every month is the most important part. If you suddenly find yourself in a position where you have much less income, resist the temptation to use your credit card as a supplementary income.
The incredibly dangerous thing is purchasing something you don't actually have the money for, and paying for it over time, with interest.
- Option 2: Pay your bills on time
- Option 3: File Bankruptcy
If you haven't taken option 1 or option 2 and you start getting court notices - then it's time to start talking to someone about option 3.
It's happened to me with an old student loan. I didn't fight it, they took some of my paycheck, the debt was gone in no time and everybody was happy.
Furthermore, the lawyer will do all further dealings with your creditors to get the amount owed cut down. If you're in the position where you can't pay your bills, you absolutely need to talk to an attorney.
ADD: From the horses mouth: "However, certain circumstances might lead to your loans being forgiven, canceled, or discharged." ( https://studentaid.ed.gov/repay-loans/forgiveness-cancellati... )
Life isn't always as simple as "don't buy more things".
Life is uncertain and variable. Demanding that people make choices based on unknowable futures is a bit silly.
You are 100% correct, life is uncertain and variable. And there is no way for anyone to fully anticipate the future with perfect accuracy. However, that right there is the most powerful reason that should be compelling individuals to be more careful and risk-averse. Especially when it comes to family, kids and health.
If you have a family to support or have a period of illness, credit is very hard to avoid.
Also, don't underestimate change. Buying a house or a car that you can afford now is one thing, but that doesn't mean things won't change in a way that means you can't afford them in the future. Things happen that can negatively impact your income.
[1] http://www.investopedia.com/terms/e/inelastic.asp
The sort of debt that you're talking about goes way further than the narrow perspective that most take on it. It begins before you are even born, and I think we should all ruminate on that.
Let me elaborate a bit, despite consistently getting down mods for expressing this point of view before. The debt begins with the parents that choose to have kids when they are unsure of their financial wellness and security for the years to come of their child's growth to adulthood. i.e. People shouldn't be having kids unless they're damn sure they can take care of them till they're adults and able to take care of themselves.
Having children should not be tied to having X amount of money - https://news.ycombinator.com/item?id=8177836
I would phrase this as "Society should be structured such that money isn't a concern because there is a safety net for everyone to be caught in aside from the extreme cases like say that "octo-mom"[1] situation.
1. http://en.wikipedia.org/wiki/Nadya_Suleman
I have friends who were commercial airline captains in 2000. Then 9/11 happened, and they went on furlough for a number of years and had to work places like Best Buy.
You're saying they should've known that their career was about to get upended and shouldn't have kids because of that?
Those are the types of people that need to watch their actions, and count their beans carefully. They're the ones I was speaking of specifically.
I'm not so sure that that is the sole reason they get touchy about the topic. I think somehow people view having children as some sort of inherent "right" of being a human. Sure, of course no one should stop them from doing it. All I'm saying is that it's not very moral or virtuous to bring a child into this world that you can't reasonably take care of till adulthood.
On the other hand, why not do what they did here. Make laws that prohibit over-burdening debt from being given to an individual.
Credit exists because different people/entities have different time preferences for money, which is a value differential. Sure, this can be influenced and skewed based on life-circumstance.
e.g. one of the posters in this thread noted how "10,000" in debt helped them get through a very troubling time in their life and how they're very grateful they had access to it at the time. Are you going to say that it was "not okay" that the creditor helped him with that? Are you saying that they should have given him/her the money for absolutely no reason, no profit, nothing? Are you implying that lending is okay if it's for charity? What, really, I can't even fathom how you can hold your opinion as logically consistent.
We can say to a debtor, maybe you shouldn't have taken that loan, sure. But can we say to a creditor, well, why did you make a large and completely unsecured loan to someone with dodgy credit at very high interest rates?
Creditors need to be careful too. I do agree that this sort of thing is better handled with relatively lenient bankruptcy laws, and I do understand garnishment (through force of government) will have to be one of the functions of a court.
So this is more about my general attitude, since I doubt we'd disagree much on the specifics here. I just don't have great innate sympathy to people who get upset about defaults when their business is making high interest unsecured loans to people with poor credit. They're welcome to do this, I just wouldn't want to see my government bend over backwards to help them.
It's only a rip-off when they're empowered to charge interest in excess of that.
Which is what actually happens in reality.
I wouldn't describe a big CC corp bringing a citizen to near-financial-ruin as "justice". While you are probably factually right and all the legal procedures more or less followed, this article still highlights a problem with our current system. That it drains people who are already weak. Kicks 'em when they're down.
It's hardly surprising that people who have never been down on their luck are the first to turn a blind eye or scolding glance towards a fellow human who has fallen from grace.
I'm not advocating for people not being responsible for their debts, but I am advocating for a caring society that helps people back up, not one that puts a boot on their throat.
Also, just a personal grievance, is any bank garnishing wages from a tax payer that took tax payer money during the bail-out.
The real problem is that denying poor people decent wages has been popular for too long - which is why they're poor.
You can't run a sane, stable society by economically disenfranchising most of the population.
It's a little bit on me that I didn't say "this is evil" and walk out, but I was much younger then and the job market for developers wasn't anywhere near as good as it is today.
Consumers don't understand that this is what they are signing up for, and the c-card companies certainly don't make it clear that defaults are a key contributor to their profitability.
There's at least one UK c-card company that charges interest rates of up 99.9% to high-risk customers. They know damn well that with a rate like that even a tiny debt is going to explode within a few months and give them the option to get a charge on someone's home, force them to sell, and pocket the original value of the debt, plus interest, plus legal costs.
Guess what? I woke up one day and found my wages garnished.
Back in the day, when my kids were little, I broke up with my wife. I kept the kids. She did not.
Due to a mix-up at child support, since I was the dad, they thought I was the one who left. So they started running up a bill. First I ever heard of it was when my boss told me to report to HR -- which threatened to fire me. I was behind in child support by over four thousand dollars.
Took over 3 years to get the state government to pay me back. Hell, I was a deadbeat dad! (And people wonder why I'm a libertarian)
But to your point, it takes two to tango, a creditor and a lender. The creditor is supposed to be the one taking the risk. That's why they charge you for borrowing money. It's not supposed to be a sure shot. Today in the states, however, the Republican-controlled Congress back in 04 passed something called euphemistically The Personal Responsibility Act or some other such horseshit and the credit card companies can chase you to the ends of the earth. Just like child support did with me.
Look, I have no problem with people paying what they owe, as long as they can pay it, of course. But with this many people getting wages garnished, and the collections agencies getting more and more draconian? The social balance is off. We're making it so if you run a credit agency and lend out money, you're guaranteed something back. Aside from who's responsible for what, that's not the way we want the economy to work.
Not even close, take the example from the article, the debtor owed 110% of the original debt (7K Vs 15K) and that is with some payments in the interim.
Is over 100% of the original debt "justice" or exploitation? With fees, fines, and other penalties rolling over (i.e. fines on fines on fines) and with no real limits, the system is set up to kick those who are down (often resulting in bankruptcy which nobody "wins").
Even if fines and fees were capped at 100% of the original debt (with only central bank interest being charged above that) I'd call that a win. I'd want to see a 50% cap ideally however (so 150%+interest has to be paid back, no more).
The profits banks make on some debt is criminal right now. They don't get away with this in much of the EU, but the EU (and members) aren't shy to regulate consumer debt.
Would it make any difference to your reasoning if the individual was financially illiterate as opposed to financially educated? Because from my point of view, it's neither justice nor exploitation, but agreed and consensual contract. Now whether those individuals made a good decision to get into the contract is a different discussion entirely, and is why I ask the above question of you.
After speaking with a lawyer about it, I was told it would have ended up costing me tens of thousands of dollars and years of court battles with no guarantee of resolution. I ended up filing bankruptcy not long after due to the garnishment and other factors causing me to risk losing my house, and by some miracle the federal government allowed the judgement to be attached to the bankruptcy case.
Think about how severe of a situation this stat depicts.
News like this really destroys the "economic recovery" propaganda that the MSM trumpets. People have no cash in hand. The income they do have is being ripped from them rapidly via debts of various kinds. The result is society-scale movement towards poverty.
This is a serious enough issue without misleading headlines.
http://www.liberty.co.za/our-products/protecting-your-income...
It's pretty much a sort of "insurance" that then pays out your salary for X amount of time if you become unable to work for whatever reason. There are many different types/kinds of this type of thing here...