Sunday, May 24, 2009

We got dem credit card blues

As part of the federal government's mandate to solve the problems of every single American citizen, President Barack Obama and Congress are increasing efforts to reign in the credit card industry.

During the last couple of decades, the credit card industry has gotten more and more aggressive when it comes to attracting customers. In some cases, it is laughably easy to get a card.

For example, when I began attending the University of Tennessee years ago, I was given a credit card application within my first few days on campus. I filled it out, and within weeks, I had a card with a line of credit in the thousands of dollars.

So, if you are a parent who will be sending a child off to college in the coming months, I strongly advise you to have a conversation with him or her about the perils of easy credit. If you do not, trouble may be coming in the next few years.

As for our government, leaders in Washington have taken action on a number of credit card company practices, according to the Associated Press. For example, legislation could do away with interest-rate hikes on existing balances, prohibit issuers from putting customer payments toward lower-rate balances first, and abolish the practice of raising a customer's interest rate because he was late paying a bill to someone else.

While these efforts are noble in some respects, the legislation is not taking into consideration one key ingredient: the cardholders themselves.

In an age where many people have trouble balancing their own checkbook, is it any wonder that we cannot handle the responsibility of having a credit card?

A reason that our recession has plunged so deep is that a lot of the prosperity the United States enjoyed in the last 20 years was artificial. Whether it was the government's spending habits or our own, many have used credit too liberally.

We adopted a "spend today, worry tomorrow" mentality to finance lifestyles that we really could not afford to maintain.

This was inviting disaster, and it occurred when unemployment started rising. People who were already juggling debt just to break even did not have anything to fall back on when they lost their job.

Though some have criticized financial guru Dave Ramsey for having an overly simplistic approach to debt, he is correct about one aspect of spending.

In his book Financial Peace, he did an effective job of describing the impact a purchase can have from an emotional/psychological/common sense point of view.

He pointed out that we have a totally different feeling within ourselves when deciding whether to make a purchase using cash or a credit card.

When we reach in our wallets and take that cash out, we swallow a little harder when compared to using a credit card. After all, when using a card, all a person has to do is swipe it and sign for the purchase. Then, we go off to spend more.

When using cash, we find ourselves thinking about how big an impact it will have on our budget and whether or not we should even make that next purchase.

This approach reminds us that our budgets are not infinite, and it forces us to be good stewards of our money.

As for credit card companies, change is definitely coming to that industry. Those companies have made suckers out of a lot of people. Now, those people want blood and want the government to do the dirty work.

It is the dawn of a new age.

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