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How To Become Debt Free!
It was 1950 when Frank McNamara of New York's Hamilton Credit Corporation came up the idea of giving affluent businessmen a convenient way to charge business-related expenses. The original Diners Club card was pasteboard with the customer's name on one side and a list of the twenty seven restaurants that accepted it on the other. The first plastic cards came out in 1955 creating a whole new way of monetary exchange.
American Express, the traveler's check company, began issuing cards in 1958 followed by The Bank of America and their BankAmericard. Because The Bank of America had California as its base of operation, the BankAmericard quickly became the most widely know card. Other smaller banks joined the BankAmericard system and the system continued to grow. In 1977 the card underwent a name change and became Visa. By the 1990's Visa was the largest credit card in use with nearly 400 million cards in circulation and more than 12 million businesses that accepted it.
In 1967, City Bank of New York issued the Everything card, the card that eventually became MasterCard. It was during the 1960's that the credit card took hold of the American consumer’s pocketbook. The credit card freed people from the restraints of having to have money to buy something by allowing them to use money that they had not yet earned. By freeing their immediate constraints the credit card took a firm hold of the card user's future. And the future showed up in the form of a bill the next month and every month after. And by the mid 1990's the consumer debt in America surpassed $1 trillion dollars, much of it through the use of credit cards.
The Prestige of Credit Card Debt
American Express devised the class system in the credit card industry. The original card was purple and through its marketing it presented an image of membership, much like being a member of a private club. In a few years the purple card turned green and then became surpassed in image by its gold sibling in 1966. By the mid 1980's the platinum card was born and the image was complete. The working-class had their "plain" card, the middle-class carried gold and the upper-class purchased with platinum.
With this system in place, the credit card companies were able to give the consumer instant gratification and control just how much debt they would get into. With the consumer being lulled into buying just a little more than they could afford, the bills never quite got paid and the credit card companies continued to be paid month after month. In many cases the payments continued long after the product purchased ceased to have any value.
Not Even the Sky's the Limit
In the 1970’s the credit card industry faced a crises. The credit card companies were faced with paying up to 20% for the money they borrowed but were prohibited by law from charging more than 12% for the money they lent out. Obviously this was a recipe for disaster. But they found, or more precisely, created a solution.
Banking regulations limited the amount of interest they could charge to the rate set by the state in which they were doing business. So banks with credit card divisions in New York were regulated by the New York law. But with an eye towards new opportunities many banks began courting South Dakota. With promises of new jobs, new tax revenues, and who knows what kinds of political contributions, it took just weeks for the laws of South Dakota to be changed to allow unlimited interest rates to be charged. Delaware, noticing the opportunity, soon changed its laws too.
Now with no limits on interest rates, credit card companies were poised for unprecedented profits. And the money began pouring in, into South Dakota and Delaware. Check your credit card statements to see where your money goes. (Utah has no limit, it has American Express - New Hampshire has no limit, it has Providian - Virginia has no limit, it has Capital One - Arizona has a 36% limit, it has Bank of America and Direct Merchants)
Make More by Charging Less
The next big advancement in credit card profits came in a brilliant move that allowed you to pay less. How does a credit card company make more by allowing you to pay less you ask? Well if you had been paying a minimum monthly payment of 5% of the balance due you paid $50 for every $1,000 you owed. But when the minimum monthly payment was cut to 2% you could now owe $2,500 and still pay just $50. But with a 2% payment you would owe the money for years and years, I mean decades and decades. You owed more money for longer periods of time and the credit card companies made more money. All conveniently packaged with the concept of “easy terms” and “monthly payments.” That is, easy money for them and endless monthly payments for you.
Are You Smiling Now?
With the limits on interest rates having been lifted and the minimum monthly payment being reduce the next advancement came in the form of a lawsuit, Smiley VS Citibank. The decision of this lawsuit allowed credit card companies to charge unlimited fees. As if unlimited interest wasn’t enough! Fees soon went from $5.00 to $10.00 to $20.00 to, well, as I said there is no limit. Seeing revenues surge it was only natural to invent new fees.
How many fees does your credit card have? Late fee? Yes! Over the limit fee? Yes! Returned check fee? Yes! Is that all? How about the Universal default fee? It allows your interest rate to be raised because you were either late on a payment, any payment not just to your credit card company or because you have too much debt. So what’s the cost of a bounced check or a late payment? If you figure it out you’re probably not going to be confused with Smiley. But as credit card companies saw their revenues from fees double they sure were happy.
Where does that leave us now? The Current State of Debt
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