be extremely careful with CCs: Universal Default

[boutons_]

http://blog.washingtonpost.com/thecheckout/

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Posted at 09:50 AM ET, 07/10/2006

Faulting Universal Default

For consumers, "universal default" has to be one of the most aggravating policies practiced by credit-card issuers. Now, New York may become the first state in the country to do something about it--at least if Gov. George Pataki signs a bill passed by the state legislature last month.

What is universal default? If you don't know, consider yourself lucky because it probably means you've not been affected. Under universal default, a credit-card company monitors the credit histories of its customers, even those who are current in their monthly payments. If a customer is late paying another creditor (such as another credit card company or utility)-- or has taken on so much debt that his or her credit score drops -- the credit card company automatically raises that customer's interest rate on existing and future balances. Default interest rates can be as high as 35 percent; most are around 30 percent.

Customers have complained that they have little choice once the higher rate is imposed; if they want to continue using the card, they have to accept the higher rate. If they refuse, the account is closed, with the cardholder liable for the existing balance at the old rate.

Credit card issuers say rates need to reflect their risks and the overall creditworthiness of the borrower. But consumer advocates have called the practices unjust and unfair, noting that in some cases the interest rates are double or even triple the rates under which cards were issued.

In June, the New York State legislature completed a measure barring credit card companies from raising interest rates because a consumer missed or made a late payment to another creditor. "This legislation sends a clear message that this type of anti-consumer behavior will not be allowed in our state anymore," said Assemblyman Peter M. Rivera (D-Bronx), chairman of the Assembly Puerto Rican/Hispanic Task Force, and the author of the measure.

Consumer groups have been trying--so far unsuccessfully--to get this same kind of law passed in the U.S. Congress. "I love it," said Linda Sherry of Consumer Action, (http://www.consumer-action.org/) a nonprofit organization that conducts an annual survey on fees and rates. "Credit card companies are the only industry in the world to re-price something you already paid for," Sherry said. "I just hope New York will be able to impose" the new law (assuming Pataki signs it) on the national banks that aren't chartered in New York, Sherry added, noting concern that the law may be challenged in court or by federal regulators.

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Expect the Repug administration to come down on the side of the financial community on this, like they did on personal bankruptcy legal reforms.

[1369]

Here's a handy hint: If you don't have the cash to pay fot it, don't buy it.

[PM5K]

Here's a handy hint: If you don't have the cash to pay fot it, don't buy it.

Why not? Then what's the point in having good credit?

If I have good credit, and I want to buy a 1300.00 tv, but I don't have the cash in hand, why can't I use my credit? I make more than enough to make the monthly payments.

There is a difference between having credit and using it wisely and living within your means and not living within your means...

So I shouldn't buy a house or a car either huh?

[1369]

Why not? Then what's the point in having good credit?

If I have good credit, and I want to buy a 1300.00 tv, but I don't have the cash in hand, why can't I use my credit? I make more than enough to make the monthly payments.

There is a difference between having credit and using it wisely and living within your means and not living within your means...

So I shouldn't buy a house or a car either huh?

If you want to throw your money away, then so be it. But why not wait until you have saved the $1300 for the TV instead of paying the card fees on top of the principal you borrowed. The store will still have TV's by the time you have saved enough.

[PM5K]

If you want to throw your money away, then so be it. But why not wait until you have saved the $1300 for the TV instead of paying the card fees on top of the principal you borrowed. The store will still have TV's by the time you have saved enough.

I don't mind, it's not like I'm paying 20% or more, why not have my TV today for less than 6% per year?

[Zombie]

I'm with 1369, we HAD $8000 worth of credit debt, I will never laet that happen again. I will only finance 1 thing a Car or Truck But I will save my money to have a big down payment.
Credit will bite you in the ass in the long run.

[1369]

I don't mind, it's not like I'm paying 20% or more, why not have my TV today for less than 6% per year?

Like I said above, that's your choice. I'd rather have my money in my pocket.

[MannyIsGod]

I think there should be a medium between having 10s of thousands in credit debt and buying nothing on credit. I personally would not want to finance something like a TV, but I've learned the hard way what abusing credit can do.

I think PM5K is correct, though. People just need to be responsible with it. Because of that, I don't mind credit card companies being able to do this.

[DirkAB]

Here's a handy hint: If you don't have the cash to pay fot it, don't buy it.


Ain't that the truth. No sense in just giving your hard earned money to creditors. The only acceptable interest payments are for cars, houses, and business loans. Oh yeah, I forgot about student loans.

[1369]

I think there should be a medium between having 10s of thousands in credit debt and buying nothing on credit. I personally would not want to finance something like a TV, but I've learned the hard way what abusing credit can do.

I think PM5K is correct, though. People just need to be responsible with it. Because of that, I don't mind credit card companies being able to do this.

I didn't mean to imply that everyone should burn their credit cards, rather if you buy something on credit (i.e. the TV), have enough in the bank to pay the total amount when the card statement comes in so you don't have to pay the loan shark fees. And certain things (like Zombie said, cars and houses and such) do require financing.

[PM5K]

I think there should be a medium between having 10s of thousands in credit debt and buying nothing on credit. I personally would not want to finance something like a TV, but I've learned the hard way what abusing credit can do.

I think PM5K is correct, though. People just need to be responsible with it. Because of that, I don't mind credit card companies being able to do this.

Why wouldn't you finance a tv?

And what would you finance?

Maybe a washer and dryer?

Fridge?

[Das Texan]

Why not? Then what's the point in having good credit?

If I have good credit, and I want to buy a 1300.00 tv, but I don't have the cash in hand, why can't I use my credit? I make more than enough to make the monthly payments.

There is a difference between having credit and using it wisely and living within your means and not living within your means...

So I shouldn't buy a house or a car either huh?



thats why you buy a tv on a however many months same as cash type deal.

[PM5K]

I didn't mean to imply that everyone should burn their credit cards, rather if you buy something on credit (i.e. the TV), have enough in the bank to pay the total amount when the card statement comes in so you don't have to pay the loan shark fees. And certain things (like Zombie said, cars and houses and such) do require financing.

Loan shark? 80.00 a year isn't anywhere near loan shark fees...

Maybe if you have poor credit and have a high interest, say high twenties, then what you are saying would make more sense...

[DirkAB]

Why wouldn't you finance a tv?

If you are too poor to pay for the television when your credit card statement comes, then don't buy it. If you think that it is a coincidence that people who finance small items never seem to get out of the hole, think again. Financing little items like televisions is bad money management.

[PM5K]

thats why you buy a tv on a however many months same as cash type deal.

I do that when I can, works out well...

[1369]

http://blog.washingtonpost.com/thecheckout/

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Consumer groups have been trying--so far unsuccessfully--to get this same kind of law passed in the U.S. Congress. "I love it," said Linda Sherry of Consumer Action, (http://www.consumer-action.org/) a nonprofit organization that conducts an annual survey on fees and rates. "Credit card companies are the only industry in the world to re-price something you already paid for,"

Uhhh, no, they haven't paid for the item, the card company paid for it. You still owe the card company for the item.

[PM5K]

If you are too poor to pay for the television when your credit card statement comes, then don't buy it. If you think that it is a coincidence that people who finance small items never seem to get out of the hole, think again. Financing little items like televisions is bad money management.

Do you mean pay it in full or pay a monthly payment?

We aren't talking about people who can't afford what they buy, 1369 is saying I shouldn't buy anything if I don't have the cash, which negates the purpose of credit and it's usefulness.

[DirkAB]

Do you mean pay it in full or pay a monthly payment?

We aren't talking about people who can't afford what they buy, 1369 is saying I shouldn't buy anything if I don't have the cash, which negates the purpose of credit and it's usefulness.


Pay in full, you should be able to pay in full every credit card statement, or at least damn close to full payment. Credit shouldn't be used for small items like TVs or appliances, you build up credit for big items to get favorable rates on houses and cars.

[Das Texan]

people take the two extremes on credit way too often.


debt isnt necessarily a bad thing.

[DirkAB]

people take the two extremes on credit way too often.


debt isnt necessarily a bad thing.


How is debt a good thing when it comes to small items? Please explain, because I don't see at as anything but people living outside their means.

[Das Texan]

How is debt a good thing when it comes to small items? Please explain, because I don't see at as anything but people living outside their means.


i'm just saying debt in and of itself isnt necessarily a bad thing.


and if one has a favorable credit rating and would rather not pay for everything all at once, then who cares?


sometimes people like to divert their funds to other means, where the return is higher than if you were to pay that tv all at once instead of over 6 months or so.

not really a difficult concept.

[PM5K]

i'm just saying debt in and of itself isnt necessarily a bad thing.


and if one has a favorable credit rating and would rather not pay for everything all at once, then who cares?


sometimes people like to divert their funds to other means, where the return is higher than if you were to pay that tv all at once instead of over 6 months or so.

not really a difficult concept.

Yup, my debit to income ratio is exactly where I want it to be, and debt within reason isn't a bad thing.

[DirkAB]

i'm just saying debt in and of itself isnt necessarily a bad thing.


and if one has a favorable credit rating and would rather not pay for everything all at once, then who cares?


sometimes people like to divert their funds to other means, where the return is higher than if you were to pay that tv all at once instead of over 6 months or so.

not really a difficult concept.


Divert their funds to other means where the return is higher!!!!!!!! Wow, a lot of investment gurus put their televisions on payment plans don't they!!!!!!!!!!!! If it isn't such a difficult concept, then please explain it to us, because now I'm really intrigued.

Accumulating debt with the purchase of small items is what people do that are living beyond their means, either that or they are rich and irresponsible, either way it is irresponsible money management, period.

[DisgruntledLionFan#54,927]

I just like using my CCs because they are shiny ...

[MannyIsGod]

I wouldn't finance anything I could save up for. If I needed a fridge right away, or a washer/dryer then I'd probably finance one. But I don't see a situation arising where I need a TV ASAP.

Wants i can save for.

[DirkAB]

Yup, my debit to income ratio is exactly where I want it to be, and debt within reason isn't a bad thing.


If that were the case then you wouldn't have to finance a television.

[1369]

Yup, my debit to income ratio is exactly where I want it to be, and debt within reason isn't a bad thing.

I don't disagree PM5K, I just keyed on the whole TV thing. To me, financing "big ticket" items is an unfortunate evil, but is necessary. But, small things, that aren't really necessary, are a luxury rather than a need.

[DisgruntledLionFan#54,927]

Lord, use your CC however you like. If you can't pay the balance off completely in a few months, don't buy it.

Oh, and financing a new car is probably one of the worst things you can do with your money...

[DirkAB]

Oh, and financing a new car is probably one of the worst things you can do with your money...

How do you get your cars, steal them? Race for pink slips?

[PM5K]

I agree, maybe others would rather finance a new washer and dryer, or a new fridge, or stove, but I already have all of those items and all of them are less than one year old, so if I want to buy a tv, it's my prerogative....

[Das Texan]

Divert their funds to other means where the return is higher!!!!!!!! Wow, a lot of investment gurus put their televisions on payment plans don't they!!!!!!!!!!!! If it isn't such a difficult concept, then please explain it to us, because now I'm really intrigued.

Accumulating debt with the purchase of small items is what people do that are living beyond their means, either that or they are rich and irresponsible, either way it is irresponsible money management, period.


yes its mostly something done by people living paycheck to paycheck, most people arent intelligent when it comes to money.


the debt on a smaller item for a short period of time is not always out of this world.

i'm just saying that sometimes one doesnt have the liquid funds necessary to purchase said television and dont want to wait until the liquid funds become available and are willing to pay the interest on said item because they have a good rate and the amount paid wouldnt be outlandish to said person. thats why being able to pay something same as cash over a period of 90 days or what not is nice, its still credit though. its not the norm overall but its possible.

thats why its not usually a good idea to use words such as never and other similar qualifiers.

:fro

[PM5K]

How do you get your cars, steal them? Race for pink slips?

He probably gets them used, maybe one year with less than 15K miles on them, and saves a ton...

[PM5K]

thats why its not usually a good idea to use words such as never and other similar qualifiers.

:fro

Ain't that the truth...

[Das Texan]

Lord, use your CC however you like. If you can't pay the balance off completely in a few months, don't buy it.

Oh, and financing a new car is probably one of the worst things you can do with your money...



most people cant afford to plunk down 20k for a new vehicle.

[DirkAB]

I agree, maybe others would rather finance a new washer and dryer, or a new fridge, or stove, but I already have all of those items and all of them are less than one year old, so if I want to buy a tv, it's my prerogative....

Of course it's your perogative Bobby Brown, however it isn't the wise financial move to purchase wants with credit unless you have the money to avoid interest payments.

[MannyIsGod]

I agree, maybe others would rather finance a new washer and dryer, or a new fridge, or stove, but I already have all of those items and all of them are less than one year old, so if I want to buy a tv, it's my prerogative....Of course by all means a responsible adult should be able to use their credit to purchase whatever they deem worthy and I never meant to imply otherwise.

[PM5K]

Of course it's your perogative Bobby Brown, however it isn't the wise financial move to purchase wants with credit unless you have the money to avoid interest payments.

Why not, my needs are already taken care of, why not take care of my wants?

Wise? Who are you to say what's wise for me? You don't know anything about my financial situation and I'd imagine that most people who do would say that I have made wise moves financially...

[PM5K]

Of course by all means a responsible adult should be able to use their credit to purchase whatever they deem worthy and I never meant to imply otherwise.

You just got yourself something free on my Chase Platinum Mastercard...


























Fucking not :lol

[MannyIsGod]

most people cant afford to plunk down 20k for a new vehicle.I think most people would be (financially) better off not purchasing a new vehicle. Seriously, this is one place where people usually go way outside what they should spend on a item according to their finances.

[DirkAB]

thats why its not usually a good idea to use words such as never and other similar qualifiers.

:fro

Let's not get into semantics, but for future reference in this thread assume that I'm talking about general rule of thumb. If you want to get completely realistic you could find a place pretty easily that will sell you the television and finance for no interest in the first few months, so that is probably what people living paycheck to paycheck would do, if they were wise.

[Das Texan]

I think most people would be (financially) better off not purchasing a new vehicle. Seriously, this is one place where people usually go way outside what they should spend on a item according to their finances.


Simply due to the deprecation of said new car I assume?

[MannyIsGod]

Thats a factor, but really people just spend far too much on cars to begin with. Someone making 30k a year shoudln't purchase a vehicle that is 2/3rds of their annual income yet you see it happen all the time.

[Das Texan]

Thats a factor, but really people just spend far too much on cars to begin with. Someone making 30k a year shoudln't purchase a vehicle that is 2/3rds of their annual income yet you see it happen all the time.


what about someone purchasing a car that is 1/3 of their annual income? Still bad to finance?

[PM5K]

Thats a factor, but really people just spend far too much on cars to begin with. Someone making 30k a year shoudln't purchase a vehicle that is 2/3rds of their annual income yet you see it happen all the time.

So you think a 20K dollar car financed over five years is too much for someone making 30K a year?

I'm not saying I disagree, just asking...

[Das Texan]

btw for someone making 30k a year, what should be the upper limit for said mortgage?

[Das Texan]

oh and i think renting is the stupidest thing you can do for what its worth, since we want to lay out personal philosophies out there.

[DirkAB]

Why not, my needs are already taken care of, why not take care of my wants?

Wise? Who are you to say what's wise for me? You don't know anything about my financial situation and I'd imagine that most people who do would say that I have made wise moves financially...


Because if you can't afford the television, or whatever other large or small item wants you are after, you save up an buy it then. Aside from paying for the intrest attached to these items, you have no idea what needs will arise in your life between the time you put it on credit and the planned time of full payment. Medical, transportation, house related, or whatever would take presidence over payment of these wants. So when these needs arise, guess what happens? That's right the wants stay on your card collecting interest while you pay off teh needs that arrose. And don't act like needs don't arrise out of nowhere, because they do all the time.

[PM5K]

Because if you can't afford the television, or whatever other large or small item wants you are after, you save up an buy it then. Aside from paying for the intrest attached to these items, you have no idea what needs will arise in your life between the time you put it on credit and the planned time of full payment. Medical, transportation, house related, or whatever would take presidence over payment of these wants. So when these needs arise, guess what happens? That's right the wants stay on your card collecting interest while you pay off teh needs that arrose. And don't act like needs don't arrise out of nowhere, because they do all the time.

All taken care of, I keep money in the bank for things like that, and I have payment protection on my credit cards, well the ones that I use...

[DisgruntledLionFan#54,927]

My cars have been 2-3 years old when purchased, though recently I've turned to leasing.

[DirkAB]

All taken care of, I keep money in the bank for things like that, and I have payment protection on my credit cards, well the ones that I use...

So if the transmission went out on your car and you broke your leg and had to miss some time at work within say two weeks on each other, you would be completely covered? If that is the case you wouldn't need to finance a television.

[DirkAB]

My cars have been 2-3 years old when purchased, though recently I've turned to leasing.

Honestly, I think that leasing is not wise.

[Das Texan]

So if the transmission went out on your car and you broke your leg and had to miss some time at work within say two weeks on each other, you would be completely covered? If that is the case you wouldn't need to finance a television.



for the last two thats why you have insurance both medical and supplemental.

[Das Texan]

Honestly, I think that leasing is not wise.


i do agree on that one, for many of the same reasons regarding renting, which is essentially what you are doing.

[PM5K]

So if the transmission went out on your car and you broke your leg and had to miss some time at work within say two weeks on each other, you would be completely covered? If that is the case you wouldn't need to finance a television.

Well yes, I have enough to cover a new transmission, and I could get by if I broke my leg because I run my own business from home and a broken leg wouldn't change much, and even if it was say both arms, my number two guy can run things almost as well as I can.

That money is for exactly that though, emergencies, not televisions....

[DisgruntledLionFan#54,927]

Honestly, I think that leasing is not wise.

For you.

There are a ton of factors that go into getting a new car. There are no absolutes...

[DirkAB]

for the last two thats why you have insurance both medical and supplemental.


People that live paycheck to paycheck usually don't have very good insurance.

[Das Texan]

People that live paycheck to paycheck usually don't have very good insurance.


in the scenario you presented we were not discussing someone that lives paycheck to paycheck really.

[phyzik]

well, for those interested, read the following.

I deal with 2nd mortgages and loans all day long at work. The math isnt that hard once you understand how interest works, but most people would be suprised by how much they are paying in interest...

Lets run through a few numbers. First there is Per Diem, or daily interest gained. This is dependant on your interest rate at the time as well as your principal balance.

lets say I have a HELOC (Home Equity Line of Credit) for 10,000.00 @ prime minus .50%.... currently Prime is at 8.25% giving me an interest rate of 7.75% (this is how your bank will explain it to you btw if you ever call about your interest on your mortgage, its a regulation).

10,000.00 multiplied by 7.75% devided by number of days in the year.... this gives you a per diem of $2.12.

(principal x interest / days in the year)

now, assuming the principal balance of 10,000.00 doesnt change (I dont use any more credit or I dont pay more then minimum payment) and say I make my payments EXACLTY 30 days apart (which usually isnt the case for anyone) AND the Prime rate doesnt change within that month, I'm looking at paying $63.70 in interest for that one month. Lets say I was a day off, 31 days would be $65.82.

basically, best way to figure it is the date the last payment was applied to the date that your next payment would be applied, multiply those days to your daily interest.

lets say I paid 100.00, 63.70 would first go to interest, the rest (36.30) would go towards the principal, giving me a principal balance of 9963.70 for the next month to calculate on.

10,000.00 is nothing compared to what I've seen... there was one guy in New york who had a mortgage for something like 300,000.00 over a 30 year loan and ended up paying over 1,000,000.00 after it was all said and done.


I could go on and on with different equations (because honestly its different for each type of loan) but it gets pretty damn crazy.... especially when you get into 2nd mortgages and crap.

[Clandestino]

basically, boutons started this thread to bitch about credit card companies... however anyone can do what they want... no one is forced to get a credit card

[DirkAB]

Well yes, I have enough to cover a new transmission, and I could get by if I broke my leg because I run my own business from home and a broken leg wouldn't change much, and even if it was say both arms, my number two guy can run things almost as well as I can.

That money is for exactly that though, emergencies, not televisions....

Maybe those were bad examples for you, but think of 2 fairly large expenses that would be out of pocket, whatever those might be for you in your situation.

Of course that money is for emergencies, point was I don't ever see anybody that is responsible enough to keep a nice little emergency fund being in the position to have to finance a television or any other want in the same ballpark. If you are financially responsible enough to think about future emergencies then you surely financially responsible enough to know how much interest you will be paying to finance.

There are instances that financing I suppose could be considered responsible, like if there was no interest for a period and you know for sure that the money won't be a stretch when the interest free period is up, or say the item was on sale and the interest on financing wouldn't be as much as what is saved on the sale.

[DisgruntledLionFan#54,927]

So it would cost you a little over $7500 over the course of 10 years, and you still owe the $10,000(which most people never chip away at).

[phyzik]

So it would cost you a little over $7500 over the course of 10 years, and you still owe the $10,000(which most people never chip away at).

yup, and thats assuming Prime stays the same... but it wont... its been going up. May 11th it went from 7.75% to 8.00%...... and sometime near june 27th it went from 8.00% to 8.25%.

[PM5K]

I actually only use my credit card for strip clubs, but that's probably a different thread for a different time...