Desiring Machine

Was watching some old PBS Frontline specials online, and watched this one about the Secret History of the Credit Card. It is a great episode and really does a good job of covering how the credit card industry works and all the players involved (consumers, banks, regulatory agencies, etc). Everyone who owns a credit card should watch this episode.

I believe in and tend to support strong consumer protections. But as a personal and political matter I don’t have a ton of sympathy for people who rack up tons of credit card debt with reckless spending beyond their means, or sheer willful ignorance of consumer finance 101. I generally am quite diligent about paying off the entire balance of my own credit cards and think personal fiscal responsibility is a high virtue. However, I myself must admit that I don’t always have the time to read the fine print and do the due diligence of understanding all the terms of my credit cards. This Frontline documentary does an excellent job of presenting the issues and frankly, I was very stunned at a few of the facts that I learned. There are some very sneaky ways that banks are able to trap individual consumers.

Here are two facts that stuck out to me:

1. Banks at any time can boost your rates arbitrarily for a variety of reasons and only have to provide you 15 days notice.
2. One clause that is in many credit card offers is that they are able to increase the interest rate even if you always pay on time but fail to make a payment with another lender.

Yes, you read that correct. Just got a good deal on a new card with 6 month 0% interest rate on balance transfers and decide to tranfer over several thousand dollars of debt to a new card? Be careful, miss a payment on your car, mortgage, or even an entirely different credit card and you might find your 0% interest rate suddenly disappearing. This was a shocking little detail, of which I was not aware.

There is no such thing as free money, and there is always a catch. It is always better to pay off your credit card in full each month, and never under any circumstances miss a payment.

My big complaint is that many credit cards don’t make it easy for you to avoid missing payments, such as automatic deductions of at least the minimum balance from your checking account. This really irritates me. I am a financially responsible person, but lead a busy life and can’t always keep up with the paperwork. To mediate the risk of missed payments I try to automate as much of this as possible so that in my haste I don’t overlook some bill and forget a payment somewhere. As an old friend once told me we have become a nation of book keepers. This is a fate that I dread, but understand its reality.