Ethics and credit cards

[RandomGuy]

I am considering defaulting on a credit card that is currently charging me 33% interest (higher if you consider how fee-happy they are).

This high rate is due to the company putting the account into a "default" rate for not being able to make a payment for two months during a spell of unemployment.

I don't mind paying a bit for not being able to live up to my side of the contract, but my question is:

At what point does this business relationship go from mutually advantageous to arbitrarily predatory?

Ethically, I am comitted to paying back the money I have borrowed. But rationally if I have a limited cash flow, and debt of various interest rates, I can pay back the most debt if the priority for that money is in order of charged interest (i.e. lowest rate gets highest priority).

Faced with a choice, it makes ethical sense given limited resources to not pay back the highest interest rates.

The course of action I am considering:

Pay the company on time for about a year (it would be about this december), then ask to renegotiate. If sucessful, I get a reduction in the interest, if not, I up the ante.
Stop paying the company in a form of protest. Calculate the loan on a more fair 15% rate, and start making "payments" based on that to my savings account. When the company decides it is better to accept the lower rate than get nothing, send whatever is in the account, and keep making payments.

Thoughts?

[ObiwanGinobili]

in strategies for paying off debt I always thought that highest APR's get paid off first?

ar you could transfer the balance to a no or low intro APR credit card. give you a good solid 6 months to pay it down, than transfer it again.
I owed $5000 + for some bullshit healthcare that I seriously debated even paying. really i shouldn't have. btu I had already paid it with a CC before I made that decision.
I bounced it between 5 no or low APR intro rate cards over 3 years and then it was paid off. took some time - yes. but i was unemployed for most of that so I consider it a victory. esp. since I thin kI paid a total of $480 in interest on that $$ thru out the whole thing.

oh if only all my debt had been so easy.


as to your plan B ..

Stop paying the company in a form of protest. Calculate the loan on a more fair 15% rate, and start making "payments" based on that to my savings account. When the company decides it is better to accept the lower rate than get nothing, send whatever is in the account, and keep making payments
if your debt is low enough in thier eyes (sometimes they are even willing ot write off a couple thou) they may just charge it off. that would totally fuck you.

[RandomGuy]

You pay off the highest rate IF you have enough money to make payments.

If you have less than enough cash flow, you must decide who not to pay. With my wife working two part-time jobs, and myself working one full time job, we have just about enough cash flow if we forgo a few things.

I was just wondering where the line for the credit card company is between extending fair credit and simply being predatory is.

If the credit card company is not ethical, does that erase my duty to pay them the interest they want to charge?

Ethically, I should pay them back the principal, but when does the interest become unethical?

[RandomGuy]

as to your plan B ..

if your debt is low enough in thier eyes (sometimes they are even willing ot write off a couple thou) they may just charge it off. that would totally fuck you.

I don't care about my credit rating.

I will not be buying a new car on credit ever, nor will I be buying a house anytime within the next five years (six years is the plan at the moment), and even then I will be buying a small house with a large down payment.

[johnsmith]

I don't care about my credit rating.

I will not be buying a new car on credit ever, nor will I be buying a house anytime within the next five years (six years is the plan at the moment), and even then I will be buying a small house with a large down payment.

Not to mention that credit rating means approximately dick when it comes to purchasing a home. However, it is a pain in the ass to get fixed.

[Ocotillo]

Have you called them to negotiate the rate? Sometimes you can talk them into a better rate by simply explaining yourself and asking for it......

Do you get offers from their competitors? If so, why not transfer the balance to a lower rate offering if the original one does not agree to play ball?

Regarding the ethics, I believe the CC companies are unethical bastards and in their disclosures which come in the form of mini-novles cover their asses. They also use your high interest and late payment fees to lobby congress to skew the rules even more to their favor.

I personally believe though, you pay back what you owe, even including their oppressive interest. Your challenge is to get away from the outfit that is screwing you at this time and to another place with a better rate and do your utmost to keep current so you can deal from a position of strength.

[RandomGuy]

Have you called them to negotiate the rate? Sometimes you can talk them into a better rate by simply explaining yourself and asking for it......

Did that. No dice. I was not too insistant, and that probably means that I didn't go high enough to get someone that had the authority to negotiate.


Do you get offers from their competitors? If so, why not transfer the balance to a lower rate offering if the original one does not agree to play ball?

Not possible. All credit lines are maxxed out, and sheet amount of debt precludes new lines of credit.

Heh, we used that trick to get the rate way down, but the loss of my and my wife's job at the same time forced us to go this far into debt or be homeless.

Regarding the ethics, I believe the CC companies are unethical bastards and in their disclosures which come in the form of mini-novles cover their asses. They also use your high interest and late payment fees to lobby congress to skew the rules even more to their favor.



I personally believe though, you pay back what you owe, even including their oppressive interest. Your challenge is to get away from the outfit that is screwing you at this time and to another place with a better rate and do your utmost to keep current so you can deal from a position of strength.

I agree, but the position of strength is always with the borrower in an unsecured loan of this type.

There is nothing in the law that can force me to pay them back if I really choose to exercise that option.

My wife and I have no assets and the only thing that they can hold over my head is my credit rating.

I do believe in paying back what I borrowed, but I did not really ever agree to borrow money at 33% APR. That interest rate was set after I borrowed the money.

I would settle for 20%, as that is closer to the going rate, but this level of interest is, in my opinion, predatory and unethical. If a mobster showed up at my door demanding "protection", would it be the right thing to pay him?

[101A]

Did that. No dice. I was not too insistant, and that probably means that I didn't go high enough to get someone that had the authority to negotiate.



Not possible. All credit lines are maxxed out, and sheet amount of debt precludes new lines of credit.

Heh, we used that trick to get the rate way down, but the loss of my and my wife's job at the same time forced us to go this far into debt or be homeless.

Regarding the ethics, I believe the CC companies are unethical bastards and in their disclosures which come in the form of mini-novles cover their asses. They also use your high interest and late payment fees to lobby congress to skew the rules even more to their favor.



I agree, but the position of strength is always with the borrower in an unsecured loan of this type.

There is nothing in the law that can force me to pay them back if I really choose to exercise that option.

My wife and I have no assets and the only thing that they can hold over my head is my credit rating.

I do believe in paying back what I borrowed, but I did not really ever agree to borrow money at 33% APR. That interest rate was set after I borrowed the money.

I would settle for 20%, as that is closer to the going rate, but this level of interest is, in my opinion, predatory and unethical. If a mobster showed up at my door demanding "protection", would it be the right thing to pay him?

How much are we talking about @ 33%?

[spurster]

This might be a useful link:

http://www.pbs.org/wgbh/pages/frontline/shows/credit/eight/

My advice is make reducing your credit card debt to zero your goal. You should:

1. Stop using your credit cards NOW! Pay for everything using cash, check, or debit card. If you can't pay for it, you don't need it.

2. Stop eating out NOW! Or at least reduce it to the bare, bare minimum. Making food at home is an order of magnitude cheaper than eating out.

3. Look at your monthly expenses such as cable TV, cell phones, broadband. Somehow we got along without all those things 20 years ago, and you can certainly do it NOW!

I'm sure others can think of other ideas. Basically, do not spend money beyond food, travel, shelter, and your telephone. You can probably get by with the clothes you have. If you want entertainment, the library is free. Colleges have sports, recitals, plays, etc. which are often free or nearly so.

Sure, all of this is a big hassle, but so is going bankrupt while giving away money you should be saving for retirement.

[101A]

Also, your wife is working 2 part time jobs; you could consider working nights, as well, until you get over the hump.

[RandomGuy]

Also, your wife is working 2 part time jobs; you could consider working nights, as well, until you get over the hump.

I have 6 graduate classes this semester. Literally not enough hours in the day to have another job for either of us.

I literally can't afford to take fewer class hours either, because then we would be out of student loan deferrment and be in the boat that we will have to pay back the student loans and the credit cards at the same time.

(sighs)

Honest, the only way to get out of this is for one of us to double our earnings rate.

As it is, even at this rate, we should have the credit cards paid off by the time the student loan deferrment ends.

We are backed into a corner on this one. We are making some progress on our debt, but that is very tenuous. The last 6 months has seen our debt shrink for the first time since we got married. :)

[RandomGuy]

This might be a useful link:

My advice is make reducing your credit card debt to zero your goal. You should:

1. Stop using your credit cards NOW! Pay for everything using cash, check, or debit card. If you can't pay for it, you don't need it.

2. Stop eating out NOW! Or at least reduce it to the bare, bare minimum. Making food at home is an order of magnitude cheaper than eating out.

3. Look at your monthly expenses such as cable TV, cell phones, broadband. Somehow we got along without all those things 20 years ago, and you can certainly do it NOW!

I'm sure others can think of other ideas. Basically, do not spend money beyond food, travel, shelter, and your telephone. You can probably get by with the clothes you have. If you want entertainment, the library is free. Colleges have sports, recitals, plays, etc. which are often free or nearly so.

Sure, all of this is a big hassle, but so is going bankrupt while giving away money you should be saving for retirement.

Heh, already there.

We stopped using the credit cards about 6 months ago when we both lucked into jobs that gave us enough cash flow to pay our bills.

Our entertainment consists of $19/month for netflix, and once per week, we order a $14 dollar pizza in place of an $10 homecooked meal for 2 and 1/2 (three year olds don't eat much).

As for the rest of it, we have little choice. I have to have a cell phone because my job requires me to travel, and we have to have internet access for my college classes (online quizzes, lectures, and the like).

We have been living on very little money and aside from budgeting a certain amount for a professional wardrobe, and getting a second cheap car for my wife to be able to get to her 2nd job, have made very few capital expenditures.

I say all this, so y'all don't think that our problems are from vegas vacations. Our problems stem from sacrificing my short-term income for my education, and a sudden uninsured hospitalization.

[RandomGuy]

But you are completely right.

A lot of people spend too frivolously, on things they don't need. We had neighbors who couldn't pay their rent, but man they thad a massive TV, entertainment center, pets, and new cars. They eventually got evicted and left their apartment in appalling shape after only 8 months.

[ObiwanGinobili]

ethicaly I think it works down to this :

they may be ethicaly wrong for thier predatorial practices - but that would not make you morally right for not paying.


I know the position you are in. we were in it too untill just recently. I was at home with 2 kids under 2 and no car scraping by on the skin of our teeth. thankfully we had paid of the last of our debt about 1 week before the 1st child was born - otehrwise we would've been on the street.
it;s an icky situatution noone wants to be in. people judge you thinkign that you could have prevented it or that you put yourself there - weithout even knowing your circumstances or anything.
just remeber that whats most important is your family day to day. if you have to forgo a CC payment - I say fuck 'em!

[Frank Brickowski]

While I agree credit card companies are blood sucking leeches they didn't force you to sign up.

My first question is why are you persuing a higher degree when you are broke? Postpone this until you have solved your money woes. It sounds like student loans and expenses incurred on credit while attending school put you in this position. I understand you will lose the deferrment but added income should offset this.

Stop taking classes and get a second job. Pay off the card with the lowest balance. Then attack the next lowest balance. Sell whatever isn't absolutely necessary. It can be done because I've done it. You and your wife have to decide to do it and not let up until everything is paid off.

[sickdsm]

Personally, i'd look more into the whole foodstamps, salvation army etc.. then rather defaulting, settlement or dropping out. There's a LOT of help out there. Saving money on formula, diapers, clothing, food etc.. and applying that to your debts would help an enormous amount. And you'd have some compassion to the programs/individuals that helped you out when you can afford to help others out later in life.

[RandomGuy]

While I agree credit card companies are blood sucking leeches they didn't force you to sign up.

My first question is why are you persuing a higher degree when you are broke? Postpone this until you have solved your money woes. It sounds like student loans and expenses incurred on credit while attending school put you in this position. I understand you will lose the deferrment but added income should offset this.

Stop taking classes and get a second job. Pay off the card with the lowest balance. Then attack the next lowest balance. Sell whatever isn't absolutely necessary. It can be done because I've done it. You and your wife have to decide to do it and not let up until everything is paid off.

They did not force me, but they did get to arbitrarily change the terms of the loan for business reasons, without renegotiating. All I ask for is a chance to negotiate terms.

My family wasn't broke until I was forced out of a job for doing what I was told to do (long story about power politics of supervisors).

Besides the degree I am pursuing and the CPA certification that goes along with it allow for me to sell my labor for a MUCh higher price than I could without the degree. Our "possessions", if we were to literally sell everything we own, would amount to only a small fraction of our debt.

In the end it is a simple contract dispute. Such happens all the time in business.

[101A]

They did not force me, but they did get to arbitrarily change the terms of the loan for business reasons, without renegotiating. All I ask for is a chance to negotiate terms.

My family wasn't broke until I was forced out of a job for doing what I was told to do (long story about power politics of supervisors).

Besides the degree I am pursuing and the CPA certification that goes along with it allow for me to sell my labor for a MUCh higher price than I could without the degree. Our "possessions", if we were to literally sell everything we own, would amount to only a small fraction of our debt.

In the end it is a simple contract dispute. Such happens all the time in business.

As one who has hired, and currently has on staff both a CFO & a Controller with their CPA's...you must stay ethically completely above board and squeaky clean. You potential employer might very well do a credit check on you before giving you a job. He/she is going to entrust you to help keep HIS house in order. You best have your own that way.

[Ocotillo]

As one who has hired, and currently has on staff both a CFO & a Controller with their CPA's...you must stay ethically completely above board and squeaky clean. You potential employer might very well do a credit check on you before giving you a job. He/she is going to entrust you to help keep HIS house in order. You best have your own that way.

That is more the rule than the exception nowadays. Good point.

[RandomGuy]

As one who has hired, and currently has on staff both a CFO & a Controller with their CPA's...you must stay ethically completely above board and squeaky clean. You potential employer might very well do a credit check on you before giving you a job. He/she is going to entrust you to help keep HIS house in order. You best have your own that way.

Yup. This is the one thing that hasn't been touched on yet. Credit checks are becoming more common especially with the effects of recent accounting scandals such as Enron putting a great deal of emphasis on the accounting profession's reliability.

Although I plan to stay with my current employer for at least 5 years, I will eventually be back in the job market and have to worry about that, should I choose to completely default.

As it is, I will not completely default on this, merely withhold payment until my terms are met. This one portion represents 4% of our total debt load, and any future check will show the balance of the other debt handled in a responsible manner.

I will keep making on-time, and above minimum payments for another 4 months, and ask nicely to have the rate reduced. At that time we will have made on-time payments for a year. If they still choose to keep the rate at 33%, I will escalate at that time.

[101A]

Yup. This is the one thing that hasn't been touched on yet. Credit checks are becoming more common especially with the effects of recent accounting scandals such as Enron putting a great deal of emphasis on the accounting profession's reliability.

Although I plan to stay with my current employer for at least 5 years, I will eventually be back in the job market and have to worry about that, should I choose to completely default.

As it is, I will not completely default on this, merely withhold payment until my terms are met. This one portion represents 4% of our total debt load, and any future check will show the balance of the other debt handled in a responsible manner.

I will keep making on-time, and above minimum payments for another 4 months, and ask nicely to have the rate reduced. At that time we will have made on-time payments for a year. If they still choose to keep the rate at 33%, I will escalate at that time.


There are also plenty of employers who appreciate an accountant who can "creatively" manage limited cash flow. ;-)

[RandomGuy]

There are also plenty of employers who appreciate an accountant who can "creatively" manage limited cash flow. ;-)

(laughs)

Yup. You would be surprised at what the rules will allow. Enron technically broke no rules...

This is one of the topics for my advanced audit class, btw. Namely a move from rule-based accounting to principle-based accounting.

I admire the motivation behind it, as principle-based accounting would be much simpler, but know that it would never work.

[101A]

(laughs)

Yup. You would be surprised at what the rules will allow. Enron technically broke no rules...

This is one of the topics for my advanced audit class, btw. Namely a move from rule-based accounting to principle-based accounting.

I admire the motivation behind it, as principle-based accounting would be much simpler, but know that it would never work.

My CFO drives me crazy. He was hired specifically because of his principals and ethics - our business demands it. Doing what's right, even when noone is looking sometimes makes for a marginal bottom line, but it does help one sleep at night.

[johnsmith]

(laughs)

Yup. You would be surprised at what the rules will allow. Enron technically broke no rules...

This is one of the topics for my advanced audit class, btw. Namely a move from rule-based accounting to principle-based accounting.

I admire the motivation behind it, as principle-based accounting would be much simpler, but know that it would never work.

"Enron technically broke no rules......"
Please explain, I'm not trying to start an argument on this one but it's a subject that I like and this sounds like a perspective on the entire deal that I hadn't heard yet......oh, and please tell me that although no rules were broken (which I need schooling on) you don't think the "mark to market" accounting scheme is a financially sound decision.........or even ethical for that matter.

[RandomGuy]

"Enron technically broke no rules......"
Please explain, I'm not trying to start an argument on this one but it's a subject that I like and this sounds like a perspective on the entire deal that I hadn't heard yet......oh, and please tell me that although no rules were broken (which I need schooling on) you don't think the "mark to market" accounting scheme is a financially sound decision.........or even ethical for that matter.

Accounting standards are(were) published by a privat entity, the FASB (fasb.org)

These are(were) the rules for accounting. I have to get to my international economics class, so I have to be brief:

Accounting standards generally allow leeway for management to make judgement calls. Agressive managers can push the letter of a standard and not quite break it.

This is what Enron did on a grand scale.

They hid their losses in massively complex transactions that, had anyone on the outside actually understood them, would have seen them for what they were: shell games. The accounting for these transactions was within the letter of the law (at the time). They did, however, grossly violate the spirit of clear financial reporting.

The rules have since changed as the federal government has established a formal governmental body with the authority to write accounting rules. The Public Company Accounting Oversight Board ("peekaboo" in accounting slang) is that entity. It has so far mostly let the FASB rules stand with little modification as of yet.

See the "sarbanes-oxley" act for the details on the US congress's response. Gotta go.

[ChumpDumper]

Just pay them something each month -- doesn't even have to be their minimum -- until you get a good balance transfer deal.

[Clandestino]

credit scores affect everything from insurance or getting time warner... and yes, you willl probably have a credit check for your career as a cpa. most people don't want an accountant who can't even manage his own shit.

and give me a fucking break about "simple contract dispute." the shit was in black and white when you signed the credit card agreement. if you don't pay we can jack your shit up to the max.

[RandomGuy]

credit scores affect everything from insurance or getting time warner... and yes, you willl probably have a credit check for your career as a cpa. most people don't want an accountant who can't even manage his own shit.

and give me a fucking break about "simple contract dispute." the shit was in black and white when you signed the credit card agreement. if you don't pay we can jack your shit up to the max.

True on both counts.

Just as they have the power to change the contract terms, so do I. I will work within their rules a while longer, and attempt to negotiate without going nuclear before hand.

One other option open is just using my last round of student loans to pay off a good chunk of the credit cards. I would not be any further in debt, but would have exchanged 3% debt for 33% debt.

Would that be more in line with something you would accept ethically?

[RandomGuy]

Again, I don't mind being penalized for not holding up 100% to my end of the bargain.

I accept my personal responsibility here.

What you have failed to answer is where is the ethical line on the part of the credit card company?

[Clandestino]

it is written that you will be charged prime + whatever high rate they charge if you default. if you think you may ever fall into that situation, then don't apply for the card. nothing unethical about informing you of the consequences and you still choosing to live outside your means