Credit Market Pitfalls

It’s clear, with the destruction of the real estate market, the failures of multiple banks, and the ill conceived bailouts of the remaining banks, that credit, or the poor use of it, has been a major contributing force to the decimation of the American economy.

Banks, and other lending institutions have shown egregiously poor judgment in doling out loans (among other things), and the resulting ripple effect has strained the economy to its breaking point. A frozen credit market means businesses cannot expand, or in many cases, pay their employees at all. Banks and other lending institutions have largely obfuscated what they did with the bailout money gleaned from our pockets, but what has been seen is unflattering and a glaring example of what is wrong with credit market merchants in general. As if the bailout, designed to get the credit markets flowing again, wasn’t enough, banks and lending institutions are once again turning to their, in many cases, faithful customers to try and extract even more cash than they’ve already received. The tactics being used to do this are infuriating.

Take credit card payments for instance. You should pay very close attention to your bill at this time. It may not be same as last month’s. It turns out banks and other credit card merchants will surreptitiously connive in order to have you paying off your card indefinitely. For instance, check your credit card interest rate. Is it the same as last month? There’s a pretty good chance it’s much higher. How about that due date? You thought it was the same day each month? Better check that as well. And you’re not still snail-mailing that bill are you? It may not arrive in time for processing, no matter when you send it. All of this will result in fee and penalties, and is designed to keep you paying indefinitely.

There’s another side to this credit fiasco though. Some people obtain a significant line of credit and treat it as some kind of Christmas present. This is money that needs to be paid back, most likely at a very high interest rate. That fact doesn’t stop people from maxing out their cards, knowing the whole time that they can’t possibly afford to pay for it later. This opens the door for banks to use the above mentioned tactics to keep the now over-their-head borrower on a perpetual payment system. When it comes to who will outlast the other in this scenario, you can be sure that the credit card merchant will come out ahead most of the time.

Don’t be a victim. If you are considering entering into any kind of credit agreement, read the fine print, and pay attention to the potential changes in the agreement. In fact, potential change may actually be written into the fine print. If you’re having trouble with the legalese, find someone who does understand. Don’t be a fool. Understand what your limits are at this time and stay within your means. Remember, your failure could have ramifications for the rest of us.