They say it pays to read the fine print, and I have the woeful tale of a friend who failed to heed those words and is now paying dearly (quite literally), for her mistake. I have her permission to share her story in hopes of helping others avoid the same mistake.
In the midst of these hard economic times, she had run up one of her credit cards just past $10,000. Though, coincidentally, the Dow bounced over that psychological marker around the same time, it didn’t mean anything to her bottom line — she was still broke. And this credit card debt was accruing finance charges at 13.99 percent.
Then came an unexpected expense. A major one to the tune of $20,000. This was followed by what appeared to be the cavalry arriving in the form of credit card checks, sent by the very same credit card company that held her $10,000 debt. She could still borrow any amount of money up to her $34,000 credit limit. The best part about the offer? Zero percent interest on the loan until June, 2010. Wow, she thought. Just enough time to take a deep breath, move some things around, and come up with the cash to repay the loan.
So it was with a sense of relief that she wrote out a check for $20,000. The faintest of alarm bells started going off in her head after she checked her account online and watched the check clear. Of course, if she had any extra money to throw at the loan, it would apply to the portion of the debt that was growing at 13.99 percent interest, right? It would appear logical that since that debt had been accrued chronologically, so it would be paid off chronologically. Just to make sure her intuition was correct, she placed a call to the credit card company.
Was she wrong. Really wrong. The credit card company informed her that any money paid to her account would first be applied to the portion of the loan borrowed at the lowest APR. In other words, she would have to pay off the entire $20,000 at zero percent before she could even touch the rest of the 10 grand growing at the monstrous rate of almost 14 percent. Essentially, now she faced an ever-growing $30,000 debt.
Outrage! Deceit! Didn’t you read the fine print, asked the credit card company representative? To which she retorted, no, I couldn’t, because you robber barons have left me no money and I can’t afford to buy new glasses!
But in all seriousness, this kind of outrageous behavior by the credit card companies is one of the reasons America and Americans are in such financial trouble today. And this is precisely why the administration of President Obama targeted credit card reform as one of its main goals. Of course, part of the problem is the huge amount of debt Americans have taken on — borrow today, pay it back tomorrow has been part of our national pattern for years, though this seems to be changing now — slowly but surely. But a huge part of the problem has been the greed of corporate America and its willingness to feed off the misery of regular citizens who are squeezed every which way by the high cost of living, enormous taxes, and, in this case, foolish loans.
My poor friend is seriously thinking about taking out another loan to pay off the $30,000. In essence, this is what a lot of Americans are doing these days, a sort of borrow from Peter to pay Paul financial house of cards that teeters dangerously from day to day and could come crashing down at any moment with any number of possibilities, including job loss (entirely possible in an economy with 10 percent unemployment) and unexpected health care costs (also entirely possible in an aging population nation where 46 million people, about 16 percent, are uninsured).
I’ve lived through lots of recessions but this one is the deepest and most painful, and has been hitting closest to home. Another one of our very good friends lost her job recently after 18 years with the same company. This is in California, where the unemployment rate currently stands at more than 12 percent. She is trying to make lemonade out of life’s lemons and is grateful that her husband still has his job, though it is a very stressful time for their family, which also includes two young sons.
I keep seeing glimmers of light in what has been a very dark time in our economy, but so far there have not been enough. Let’s hope for the sake of all Americans, especially our two friends, that we are now in the darkest part of the tunnel before we emerge into the bright sunshine at the end.
I don’t want to end on such a negative note so now I’m going to share a happy story. This past Wednesday, Bill and I celebrated our 20th anniversary. We shared a nice, romantic dinner out with our 10-year-old. It’s amazing to think how quickly the years have flown, but truly, you blink and they fly.
Have we had challenges over the last two decades? Absolutely. Who hasn’t? But there’s also been happiness beyond measure. Would I do it all over again? You bet! Hey, Bud, this one’s for you! Happy anniversary!