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Wednesday, October 31, 2007

 

Credit Card Debt, Whose Fault Is It?

The first credit card was created in the 1950's and made popular in the 1960's. The original idea was to allow consumers the ability to access funds when traveling or anytime they were away from their home based financial instition. What was seen as simply an item of convenience has since become the American way. "Buy now, pay later". But what happens when we buy, buy, buy but cannot afford to pay; not now or later. Whose fault is it?

A lot of attention is currently being paid to credit cards and the evil policies that surround them and the innocent and unknowing consumers that are affected. The overwhelming problem of credit card debt and the steadily increasing rate of debt has caused Congress to focus heavily on this issue and consider passing several bills to further regulate the growing problem.

One practice being investigated is that of universal default. Universal defalut is currently a legal practice that allows your credit card company to increase your interest rate based on the status of any of your other accounts. Exceeding your credit line (even by just a few dollars), carrying a debt to income ratio that is deemed too high, utilizing more than 50% of your available credit on other accounts, excessive number of inquiries on your credit report, making a payment that is rejected for non sufficient funds or taking out an additional loan with another lender are all consumer actions that can result in universal default. Fair? It's legal. All of this information is provided to you at the time of application. Who reads all that fine print, right?

Now, while all of these practices can simply be avoided by mainintaing a good grasp on your finances and making sure you make timely payments on all accounts, Congress is posing the question; "Are the penalties too high?" Sure, the information is available to us and yes we do have the option to educate ourselves before signing anything but when we don't or when we make a mistake, who is responsible? Not the consumer, of course not! How could we possibly be held responsible for our actions when the price to pay is so steep. So Congress says that rather than hold consumers responsible for their actions, the government must intervene. The 850 billion dollars that Americans owe in revolving debt is said to be leading this country into a downward spiral as more and more families are turning to bankruptcy for freedom from debt. Is this something that the government should place more emphasis on and provide more rules for everyone to follow and if so at what point do we point to the consumer and say "Stop Spending!"

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