When I look around at the state of our economy, I am left to ponder the question, who is to blame? Is it the Government? The citizens? Foreign Investors? While I think each of those has played a part in our current crisis, the real culprit is another group entirely.
Banks and credit card companies are to blame for our current economic crisis. Just as a drug dealer would share responsibility if someone they sold drugs to overdosed, so it is with financial lenders.
The economy was lush, people were flush, and all seemed well in the world of finances. Banks were giving loans and credit and mortgages to anyone with a job and a credit score over 600. Interest rates were low, and people who thought they could afford a home, car, or a little bit of consumer debt were jumping on board the money train.
People began investing heavily in real estate, causing a surge in values. Speculation in oil became more prominent. Money was growing on trees. At least, that is what creditors were allowing people to think.
Alas, a train crash was inevitable, and due to a number of factors, this one was going to be very, very bad.
Thanks to speculation and the war in Iraq, the price of oil reached an all-time high. As any student of finance knows, our economy is directly tied to oil. The higher the cost of oil, the higher the rate of inflation, and the less spending power people have. So what happened?
All these people, loaded with great credit and a wallet of credit cards, used their credit to maintain the lifestyle they had become accustomed to, thinking this would be temporary. But it wasn’t temporary. It went on far too long, until at last the mirage started to disappear.
People started losing money, missing payments, defaulting on loans, spending more on credit cards, and on and on.
Train wreck. Stocks dropped. Home values dropped. Companies started cutting jobs and cutting spending.
With the drop in home values and the loss of jobs, foreclosures have skyrocketed. As payments have been missed on loans and credit cards, credit limits were cut and interest rates raised. Formerly high credit scores were suddenly in the dumps. Everyone stopped spending what little money they had.
The economy essentially collapsed. Enter the Great Depression of 2009.
The effect has been horrifying. People who could still afford homes can no longer get the loans. People who were working hard to pay off credit cards and loans, never missing payments, paying more than the minimum, are suddenly hit with lower limits and higher rates, severely harming credit scores and raising minimums. Businesses with excellent credit history who needed their lines of credit saw them disappear.
The result has been a downward spiral. This spiral is being perpetuated by banks and lenders, trying to pad their bottom lines. The innocent are suffering to pay for the mistakes of others. Some people miss payments or default, so the reliable people are essentially being heavily taxed to cover the shortages, which is horribly, horribly wrong.
My wife and I find ourselves in that very predicament. We have tried to be careful with credit, but periods of joblessness, injuries, and medical expenses, coupled with low incomes and school debt, have forced us to rely on credit simply to get by. We had enough money to cover our debts, and were on track to have everything paid off in 3 years. And then everything hit the fan.
Because we, and I quote, “weren’t paying off our debts quickly enough”, our limits on all our credit cards were cut, and almost all of our interest rates have been raised. The worst offender has been Bank of America. They cut our limit to 1/3 of what it was, taking our debt to credit ratio from 30% to over 90%. They raised our interest rate from 8.99% to 23.99%, and have refused to lower it. We have never missed a payment, made sure to keep our debt to credit under 50%, and always paid much more than the minimum. What did we get for our good behavior? Screwed.
What a load of crap. How is the economy supposed to get better when the reliable people are being screwed? I’ve shredded almost all our credit cards, and I’m only keeping open my oldest accounts for credit score reasons.
My wife and I were looking to get into a home. Because of the cutting of limits and raising of interest rates, our debt to income ratio and our debt to credit ratio spiked, causing our credit scores to plummet. I was a 775. I’m down into the mid to low 600’s now. So is my wife.
Now, my wife has joined the ranks of the 10% of America that is unemployed. We can no longer cover the costs of our basic needs. If it weren’t for the ridiculous behavior of the credit card companies, we would be in a house, sitting on enough equity to consolidate our debts into one low-interest HELOC. Instead, we are renting, watching what little money we have evaporate.
Thank you Bank of America. Thank you Chase. Thank you Discover.
The next step for my wife and I may well be bankruptcy, and then the credit card companies will get just what they deserve for driving people like us into the ground. $0.
For those who have been historically reliable, not missing payments and paying more than the minimum, why not raise credit limits and lower rates? Help their credit scores, so they can continue to be consumers. Make it possible for people to start buying homes. Make it possible for people to afford their payments.
STOP BEING GREEDY!!!
If, as a credit company, you made bad choices, you are the ones who should be paying for them, NOT US!
The Government should be forcing creditors to stop making things worse. It should not be bailing out failed companies, which will surely eventually result in higher taxes for us. Same thing goes for national health care.
Why the hell would I or anyone else who works hard want to pay for national health care? I have health care. The last thing I can afford is to pay for health care for someone else, further decreasing our already limited spending power, and pushing us even closer to bankruptcy. Between Federal Tax, State Tax, FICA, FUTA and Tithing to my church, I’m already out over 1/3 of my income. I can’t afford that, much less more.
My wife has a wonderful degree, because she was taught that education debt is a wise investment. She has no job, and has been unable to find a job, much less one with pay befitting a college degree holder in her industry. While she is jobless, we still have her school debt to contend with, as well as her mounting medical costs.
Honestly, we’ve pretty much reached the end of the road. Between credit cards, a used car, student loans and a personal loan, our debt is roughly $58,000. Quite a lot for a couple who own no home and have nothing in savings.
Even so, if my wife could find full-time employment making at least $12/hr, and if credit card companies would stop raising interest rates, we would be able to pay this off in only 3 1/2 years. Every penny. We have still never missed a payment, and always pay more than the minimum. But if my wife remains unemployed, that will soon come to an end.
No one in my family has the financial ability to help us, as far as I know. I’m under a non-compete with my current employer, preventing me from using my skills to consult or do work on the side to earn more money. I couldn’t even get a second job in my industry.
The moral of the story is that you should avoid debt at all costs, that interest sucks unless you are collecting it, and that you should always live within your means.
Thanks to this experience, we are learning how to make our money stretch. We’ve learned to do without a lot of things, and may yet learn to do without many more. In truth, I think the experience has been a blessing, as I can now empathize with others who are suffering financially, and I’ve learned many important life lessons, financially and otherwise.
My wife told me the other day that she is ready to start having kids, and I think I am too, but I know that in our current financial situation that there is no way on earth we could afford it. It certainly wouldn’t be financially responsible. I wish so much that we could turn back the clock, make smarter financial decisions. The best we can do is live and learn and work for a better future, and most certainly avoid making the same mistakes twice!
Well, I’ll stop venting. If there are any wealthy, benevolent individuals out there who are interested in changing the lives of two struggling people for the low, low price of $58,000, we would be forever grateful, and we promise to return the favor, or pass it on to another in need, if ever we have the financial ability to do so.
Until then, we shall struggle on.