

My Credit Card Company says I'm a Deadbeat - kyu
http://blog.debteye.com/debt-articles/im-such-a-deadbeat/

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melvinram
For those not able to go to the site, here is the Google cache version:

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There are over 600 million credit cards in circulation that accounts for 1.5
Trillion dollars in consumer spending. An estimated 115 million card holders
carry a balance on their credit cards every month, also known as “the
revolvers”. These cardholders are the “sweet spot” for the banking industry
that generate over $30 billion dollars a year in interest and fees. - Source

If you’re like me and pay off your credit cards every month, we are known as
the “deadbeats” to the credit card companies. Deadbeats are consumers who
avoid interest and fees by paying off their balances in full every month,
rather than paying the minimum payment and carrying a balance. Why it Pays to
be a Deadbeat

Credit card companies can automatically increase your interest rate if they
have any reason to believe that the risk of being repaid by the customer has
increased. This means that if you’re accumulating too much debt on your credit
card or if you fell behind on any other obligations such as a mortgage or a
car, this is enough reason for them to increase your rate. This practice is
called the “universal default”.

Let’s say for example you have a Chase credit card at a 6.9% interest rate and
a Citi credit card at 11%. It was the holiday season and you went out to buy
gifts for friends and family. You charged all the gifts on your Citi credit
card and went near the high credit limit that was available. As a financially
responsible cardholder, you promptly paid off the balance in full the next
month. A few days later, you receive a letter in the mail from Chase stating
that your interest rate is being increased from 6.9% to 19.9%. It doesn’t make
sense does it? Banks are allowed to increase your interest rate at any hint
that you may be a high risk customer.

Usury laws were designed to help protect consumers from lenders who charge
high interest rates. However, major credit card issuers are based in states
without usury laws. Let’s take the example from above. If you have a Citibank
credit card, take a look at where they’re located. South Dakota. If you have a
Chase credit card, you’ll notice that they’re located in Delaware. So what do
these two states have in common? These two states have no caps on the interest
rate they can charge consumers! Why Creditors Love “Revolvers”

Besides the obvious that “revolvers” pay only the minimum payment and generate
huge profits for credit card companies, creditors understand that it’s
difficult for someone to change their spending habit. A consumer who recently
filed for bankruptcy is a prime target.

“Nearly all debtors stated that they had received offers for credit in the
first months following their bankruptcy” -Source

Frequency of Credit Offers Per Month in First Year after Bankruptcy – Source

Average 14.56 Median 10 Standard Deviation 29.35 Respondents 339

So why are families fresh out of bankruptcy such an ideal target? It’s hard to
imagine someone to dramatically increase their income in the first few years
out of bankruptcy. Just because someone filed for bankruptcy doesn’t
necessarily mean that they’re more financially responsible. People in
financial distress are more likely to carry balances, exceed their credit
limit, and use cash advances (which carry higher interest rates). So what now?
New bankruptcy laws prohibit consumers filing for bankruptcy within 8 years;
this means 8 years of minimum payments to the creditors! The banks have just
hit their “Sweet Spot!”

How to go from a “Revolver” to a “Deadbeat”

By now, who wouldn’t want to be a “deadbeat”? I can write an entire article on
how to save money and pay off your debts. Off the top of my head, the single
biggest advice I can give you is to live within your means and start a budget.
I know it sounds lame, but I challenge you to create a monthly budget and
stick with it for at least 3 months! Anyone who is overwhelmed with debt and
on the verge of default, there are realistically only a few options: credit
counseling, debt settlement, and bankruptcy (if you haven’t already filed
within 8 years). You can go to Debteye to get a free debt analysis if you feel
you’ve dug a hole too deep.

I’ll end it on this note: Congratulations to all the deadbeats out there!

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corin_
After pointing out that people who pay off their entire balance each month (or
don't use credit at all) avoid interest and fees, I don't see why he then had
to go on and on about "Why it Pays to be a Deadbeat". Surely it's pretty
obvious, even without all the other nonsense tricks, even if they were lovely
people who would never change your interest rate, etc etc.... it would still
obviously be better not to be paying any interest at all.

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bryanlarsen
There's a big flaw in the article though. Credit card companies get 2-3% of
each transaction, whether you're a "deadbeat" or a "revolver". So while they
may prefer "revolvers", they're also pretty happy to keep "deadbeat"'s around.

My wife & I together run about $3K a month through our credit card. We get 1%
cash back, so that means the bank is keeping 1-3% or $30-$90 every month. If
we were paying that on our bank account we'd be screaming about it and looking
for a new bank account. Instead, we pay it indirectly through higher prices
and don't notice.

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gte910h
Lots of people contend people who pay through means other than credit cards
actually pay it through higher prices, where you get part of it back.

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infinite8s
This is why I think "cash-back" cards are basically in an arms-race with
alternative forms of payment. The cash you get back ultimately comes from
higher transaction fees, which translates to higher prices, and so people who
don't use cash-back cards end up getting charged higher. The only rational
thing to do is use cash back cards for all your purchases, which in the large
scale makes just escalates the process.

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jacobr
Could someone explain to a non-US resident why basically everything seems to
be running on credit in the US?

You basically have money on a bank account (hopefully), but still lend with
interest to consume?

The only credit card I own is from my employer for expenses, everything else
is on debit. I only spend money I have. Quite a few people in Sweden, where I
live, have some credit on their debit cards, but I think most people only use
the credit for emergencies.

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the_gws
Half cheek in tongue answer: The difference is that in the US people believe
that they will be making more and more every year while in Sweden you don't.
So they think they will own tomorrow the money to pay back what they spend
today.

Are they right? Well, from 1970 to 2010 US economy has grown at an average of
2,9% per year, while Sweden by 2,1% (1). This is a huge difference, almost 50%
more. So yes, they are both right :)

(1) Figures are GDP growth at market prices, source: OECD

